MELBOURNE – Asia joined a global stock rally, but the US dollar extended losses after the United States Federal Reserve indicated it will begin cutting interest rates in 2024.

MSCI’s broadest index of Asia-Pacific shares outside Japan shot up 1.8 per cent, its biggest one-day percentage jump in a month, although China stumbled again and a stronger yen pushed Tokyo down 0.7 per cent.

China stocks closed down on Dec 14, erasing gains in early trade, as credit data showed domestic demand remained weak, while Hong Kong shares tracked global markets higher.

Singapore’s Straits Times Index closed up 0.6 per cent.

The Fed left interest rates unchanged on Dec 13 and its chairman Jerome Powell said its historic tightening of monetary policy is likely over, with inflation falling faster than expected.

A near-unanimous 17 of 19 Fed officials project that the policy rate will be lower in a year’s time – with the median projection showing the rate falling three-quarters of a percentage point from the current 5.25 per cent to 5.5 per cent range.

US Fed funds futures boosted the chances of rate cuts starting as soon as in March after the Fed decision, according to LSEG’s FedWatch. The market has priced in more than 150 basis points of easing in 2024.

“The Fed has delivered an early Christmas present to markets,” said Ms Kellie Wood, deputy head of fixed income at Schroders in Sydney. “The next move is a cut, and markets are now anticipating a faster and sharper easing cycle.”

State Street Asia global macro strategist Ben Luk said: “It was a very aggressive pivot...

“The Fed has followed market expectation in terms of allowing for one more rate cut to be added into both the 2024 and the 2025 (outlooks).”

This aggressive pivot will have a mixed impact in Asia, with tech shares to benefit more while markets including Japan will have a dampening effect as its currency strengthens with a weakening US dollar, he added.

US Treasuries extended gains in Asian trading, after rising sharply in the previous session, with 10-year yields falling below 4 per cent for the first time since August.

Dollar drops

A gauge of US dollar strength slipped after the move in yields, sending the yen higher. Japan’s currency strengthened to levels not seen since August and advanced further on Dec 14.

The Bloomberg Dollar Spot Index dropped as much as 0.5 per cent to its lowest since August, extending losses from Dec 13, with the Australian dollar and the yen both rallying more than 1 per cent.

“The decisive Fed pivot to rate cuts has pretty comprehensively undercut near-term US dollar prospects,” Mr Richard Franulovich, head of forex strategy at Westpac Banking in Sydney, wrote in a note to clients. “While the door is now wide open to the long-awaited big turn in the dollar, we still think it is going to take time to develop.”

The South Korean won rose more than 1 per cent against the greenback, and the Malaysian ringgit advanced 0.9 per cent, in a sign of strength among emerging market currencies.

The Singapore dollar also strengthened in anticipation of the Fed’s pivot. At 8pm on Dec 14, it was trading at 1.3292 per US dollar.

Following the Fed meeting, DoubleLine Capital chief executive and chief investment officer Jeffrey Gundlach predicted on CNBC that the 10-year Treasury yield could fall to the low 3 per cent range by 2024 as bonds rally.

Others, including respondents to Bloomberg’s latest Instant Markets Live Pulse survey, see modest gains for stocks and bonds in 2024 and highlighted the prospect that Fed easing may not be as aggressive as markets are now expecting.

Spot gold was up 0.23 per cent at US$2,030.99 per ounce, after rising 2.4 per cent on Dec 13.

Oil prices rose, extending gains from the previous session. Brent futures rose 1.3 per cent to US$75.26 a barrel, while US West Texas Intermediate crude rose 1.1 per cent to US$70.27.

REUTERS, BLOOMBERG