Executive Summary
The Story So Far
Why This Matters
Who Thinks What?
Asian shares rallied on Wednesday, fueled by renewed optimism surrounding artificial intelligence and anticipation of key economic decisions, including the Federal Reserve’s rate announcement and earnings reports from major technology companies. Investors are bracing for a busy day that could set the tone for market direction.
AI Fuels Market Gains
Wall Street closed at record highs overnight, following positive news from Nvidia and Microsoft, which subsequently boosted Asian markets. Nvidia announced $500 billion in bookings for its AI chips and plans to build seven supercomputers for the U.S. Department of Energy. Microsoft reached a deal allowing OpenAI to restructure into a public benefit corporation, granting the software giant a 27% stake in the ChatGPT maker.
These developments propelled MSCI’s broadest index of Asia-Pacific shares outside Japan up 0.16%, while Japan’s Nikkei surged more than 1% to another record. South Korea’s Kospi also reached an all-time high, bolstered by strong earnings and a bullish outlook from Nvidia supplier SK Hynix.
Later on Wednesday, technology giants Microsoft, Alphabet, and Meta are scheduled to report earnings. Charu Chanana, chief investment strategist at Saxo, noted that “Expectations are sky-high, and the bar for disappointment is high too.” She added that investors are looking for “not just solid numbers but evidence of sustained AI monetisation and broadening demand beyond the initial boom.”
Federal Reserve Decision Anticipated
A highly anticipated rate decision from the Federal Reserve is expected later in the day, with a 25-basis-point cut almost fully priced in by markets. Beyond the rate adjustment, investors will closely monitor whether the central bank will halt its long-running effort to shrink its balance sheet, known as quantitative tightening (QT).
Saxo’s Chanana suggested that “The end of QT, if announced, would be interpreted as a dovish shift, especially if it comes with hints of maintaining balance-sheet stability.” The prospect of lower U.S. rates this week supported bonds, with the two-year Treasury yield holding at 3.4904% and the benchmark 10-year yield at 3.9814%.
Currency Markets React
The expected Fed rate cut contributed to a weaker dollar on Wednesday, with the euro firming at $1.1652 and sterling at $1.3272. The Aussie dollar rose 0.17% to $0.6598 after data revealed that domestic inflation increased by the most in over two years during the September quarter, potentially ruling out a near-term interest rate cut from the Reserve Bank of Australia.
In Japan, the yen strengthened 0.3% to 151.66 per dollar, following U.S. Treasury Secretary Scott Bessent’s warning to Tokyo against maintaining a weak yen through prolonged low borrowing costs. The Bank of Japan (BOJ) is set to announce its policy decision on Thursday, with expectations for rates to remain steady.
Gregor Hirt, global CIO for multi-asset at Allianz Global Investors, commented, “We expect the BOJ to adopt a moderately hawkish hold, signalling its intention to normalize policy in the coming months and laying the groundwork for a possible rate hike, likely in December or potentially January.” He added that Governor Kazuo Ueda might “provide some moderate push-back to mitigate further currency weakening in the absence of immediate policy action.”
Commodity Movements
Oil prices saw an increase, breaking a three-day decline, as investors considered the impact of U.S. sanctions against Russia’s two largest oil companies on global supply, alongside a potential OPEC+ plan to raise output. Brent crude futures rose 0.28% to $64.58 a barrel, while U.S. crude gained 0.18% to $60.26 per barrel.
Meanwhile, safe-haven gold traded just shy of $4,000 an ounce. A pick-up in risk appetite reportedly dented demand for the asset, following its recent sharp fall that squeezed leveraged money out of a crowded trade.
