Asian stocks stagger as traders prepare for expected US rate cut

HONG KONG, China – Asian equities drifted Monday as investors gear up for an expected US interest rate cut this week, with debate centering on the likelihood the Federal Reserve will continue easing monetary policy further into the new year.

The reduction has been well baked into traders’ plans following a string of comments from key decision-makers since last month and data indicating the labor market continues to deteriorate.

READ: US Fed official backs further rate cut due to weak job market

However, with the latest round of inflation figures suggesting there is plenty of work to do to get prices under control, and confidence among consumers softening, there are worries the central bank might not have room to keep cutting.

The latest, and delayed, reading on September personal consumption expenditure (PCE) — the Fed’s preferred gauge of inflation — came in slightly above August, though the core reading was unchanged.

The data did little to move the needle on rate expectations but showed that it remains stubbornly above officials’ target.

Economists at Bank of America said that a blackout period for Fed members commenting on policy would end on Thursday and “we’ll be on the lookout for what potential dissenters have to say”.

With the backlog from the government shutdown being cleared, the BoA team pointed out that there were several key releases between Wednesday’s decision and the next meeting in January.

READ: US Fed flags spending divide among consumers as employment cools

That includes three non-farm payrolls prints, two unemployment reports, two inflation releases and retail sales for October, November and maybe December.

“We look for two or three substantive changes in the (policy board) statement. The description of labor market conditions is likely to omit the language that the unemployment rate ‘remained low’, to reflect the 32-basis-point uptick over the last three months,” they wrote.

Guidance

“The forward guidance language might also be tweaked to indicate that the bar for additional cuts has risen. This would be a nod to the hawks.

“Markets are looking for a hawkish cut, in the sense that they’re pricing under eight basis points of cuts in January and less than a full 25 points in the first three meetings of 2026 (after which Jerome Powell’s term as Chair ends).”

All three main indexes on Wall Street ended last week on a positive note, but Asia struggled to match.

Tokyo was marginally lower while Hong Kong, Sydney and Singapore were in the red. Shanghai, Seoul, Wellington and Taipei rose.

Traders are also keeping a wary eye on China-Japan tensions following news that Tokyo summoned Beijing’s ambassador after Chinese military aircraft locked radar onto Japanese jets.

Relations have chilled since Japan’s Prime Minister Sanae Takaichi suggested last month that Japan would intervene militarily in any Chinese attack on Taiwan.

Tokyo said J-15 jets from China’s Liaoning aircraft carrier on Saturday twice locked radar on Japanese aircraft in international waters near Okinawa.

China’s navy said Tokyo’s claim was “completely inconsistent with the facts” and told Japan to “immediately stop slandering and smearing”.