Those hopes have spurred a bout of risk taking and led a rally in global equities, with MSCI’s broadest index of Asia-Pacific shares outside Japan up 0.6%
Asian stocks rose broadly on Wednesday, tracking a rally from Wall Street as investors were optimistic that the Federal Reserve could begin cutting rates as early as next March.
As traders wind down with few critical economic data releases scheduled between now and the end of the month, the market mood continues to be dominated by the prospect that major central banks globally could begin cutting rates next year, with the Fed taking the lead.
Those bets have spurred a bout of risk taking and led a rally in global equities, with MSCI’s broadest index of Asia-Pacific shares outside Japan up 0.6%.
The index was on track for a 2.3% gain this month and looked set to end the year around 2.5% higher, having clocked a 20% drop last year – its worst performance since 2008.
Japan’s Nikkei gained 1.2%, while Hong Kong’s Hang Seng Index was 0.9% higher in its first trading day after being closed for the Christmas and Boxing Day holidays.
Market pricing now shows a more than 80% chance the Fed is likely to begin cutting rates next March, shows the CME FedWatch tool, with more than 150 bps of easing priced in for all of 2024.
One of the most notable developments of 2023 came at the end of the year when the FOMC delivered a surprisingly dovish signal at its December meeting, said Tim Murray, a capital markets strategist at T. Rowe Price.
He said: This is a big deal. We spent 2023 fearing that the impacts of tight monetary policy would drag the economy into recession. Happily, that did not happen, and a more dovish Fed means the possibility of recession in 2024 has dropped considerably.
