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© Reuters. FILE PHOTO: A man uses a mobile phone as he takes a photo of the electronic board displaying share prices during a trading session at the Pakistan Stock Exchange, in Karachi, Pakistan November 28, 2023. REUTERS/Akhtar Soomro
By Stella Qiu
SYDNEY (Reuters) – Get ready for an exciting day in the world of trading! Asian shares are riding the wave of positive movement from Wall Street on Wednesday as the excitement of a potential U.S. rate cut lingers near the year’s end. At the same time, oil is holding onto gains from the past two days following attacks by Houthi militants on ships in the Red Sea, causing disruptions in maritime trade.
The yen is also experiencing some action as it continues to lose value, sitting at a one-week low. Japanese yields are extending declines as well after the Bank of Japan held its policy steady with no indication of when it may end negative interest rates. This is further fueling risk appetite across the global market.
MSCI’s broadest index of Asia-Pacific shares outside Japan is up 0.6%, boosted by a 1.2% jump in Hong Kong stocks, a 0.5% rise in Australia’s resources-heavy shares and a 1% increase in South Korea.
Global markets are looking strong, with futures surging 1.6% to the highest in about one month, building on gains from Tuesday. At the same time, China’s central bank left its benchmark lending rates unchanged on Wednesday, as was widely expected.
The rally was fueled by an unexpectedly dovish tone from U.S. Federal Reserve Chair Jerome Powell last Wednesday on rate cut prospects next year, with the stock market having paid little attention to the pushback since from other Fed officials.
While some Fed officials are pushing back, saying there is no urgency to cut rates, the general consensus is that a recession will be avoided. However, equity multiples appear rich, credit spreads are tight, and volatility is unusually low, suggesting that even in an optimistic scenario, upside is limited for risky assets.
Investors are turning more bullish in December, buying stocks and reducing cash holdings, according to a BofA fund manager survey, while favoring bonds. Falling yields are also propping up equity valuations, with benchmark 10-year yields slipping to just above their five-month low and two-year yields nearing a seven-month trough.