Asian Markets Follow US Rally as Interest Rate Peak Looms

Asian markets saw gains today, echoing Friday’s rally in US stocks and bonds as investors increasingly believe that interest rates have reached their peak for the current economic cycle.

Equities in Australia, Japan, South Korea, and China all posted gains, pushing a regional stock gauge to its highest level in nearly a month. This marked the fourth consecutive advance of more than 1%.

South Korea’s benchmark index jumped by 4% following Sunday’s announcement that the country would ban short-selling.

This restriction took effect on Monday and is set to last until the end of June next year, as declared by South Korea’s Financial Services Commission.

Investors have adjusted their predictions for Federal Reserve rate cuts next year, with swaps pricing suggesting that a cut by June is fully priced in. This increased expectation for rate cuts stems, in part, from projections of a weaker jobs report and a slight uptick in US unemployment.

Vasu Menon, Managing Director of Investment Strategy for OCBC Bank Singapore, commented, “There’s a bit more reason for investors to be more optimistic that the Fed is probably done with rate hikes, but one should not let one’s guard down. If the economy proves to be more resilient, if inflation proves to be more stubborn, bond yields could go up once again.”

Most Asian currencies advanced against the dollar, with the South Korean won and Indonesian rupiah leading the way. Meanwhile, 10-year Treasury yields inched up in Asian trading after a nine-basis-point drop on Friday.

Forecasts for Federal Reserve cuts next year challenge the narrative of “higher for longer” that policymakers have outlined in recent months, potentially setting the market and Fed officials on a collision course.

Bank of Japan Governor Kazuo Ueda, addressing the central bank’s inflation target, mentioned that the bank cannot yet see its inflation target within sight with enough certainty, although the chances of achieving the goal are gradually rising.

Looking ahead, investors will closely watch the Reserve Bank of Australia’s potential interest rate increase after a four-meeting pause in rate hikes. China is set to release trade data following Chinese Premier Li Qiang’s pledge to expand imports in Sunday’s comments.

In the commodities market, oil prices rose slightly in Asia following Saudi Arabia and Russia’s reaffirmation of their commitment to supply curbs of over 1 million barrels a day through the year-end.