Asian Stocks Rally on Year-End Optimism, Anticipation of Rate Cuts

Asian stocks experienced a broad rise on Wednesday, mirroring Wall Street's rally as investors embraced year-end optimism and anticipated rate cuts from the Federal Reserve as early as March. With few critical economic data releases expected by the month-end, the market sentiment is influenced by the outlook that major central banks worldwide might initiate rate easing in 2024, led by the Fed.

MSCI's broadest index of Asia-Pacific shares outside Japan surged over 1%, reaching a four-month high. The index was poised for a 2.8% gain this month, closing the year nearly 3% higher after a challenging 2022 with a 20% decline - its worst performance since 2008.

Japan's Nikkei rose over 1%, and Hong Kong's Hang Seng Index gained 1.5% on its first trading day post-Christmas. Chinese blue chips saw a marginal 0.2% gain.

Market indicators suggest an over 80% chance of the Fed initiating rate cuts in March, with more than 150 basis points of easing priced in for 2024. The recent dovish signal from the Federal Open Market Committee (FOMC) in its December meeting has alleviated concerns about tight monetary policy dragging the economy into a recession.

European and British stocks are anticipated to follow the positive trend, with EUROSTOXX 50 futures up by 0.5%, and FTSE futures rising by 0.4%. Meanwhile, S&P 500 futures and Nasdaq futures showed little change.

In the currency market, the dollar remained weak, near a five-month low against a currency basket and a four-month low against the euro. The yen slipped to 142.58 per dollar, influenced by the Bank of Japan's divided opinions on its ultra-loose monetary stance.

Brent crude and U.S. WTI crude futures slipped slightly but remained close to one-month highs due to concerns about shipping disruptions in the Red Sea. Geopolitical tensions, including Israel's ongoing conflict with Hamas, contributed to the market's cautious stance.

Source: REUTERS