Executive Summary
The Story So Far
Why This Matters
Who Thinks What?
Asian stocks saw gains on Thursday morning, following a quarter-point interest rate cut by the U.S. Federal Reserve and a meeting between President Donald Trump and Chinese leader Xi Jinping aimed at de-escalating trade tensions. Investors are now anticipating imminent interest rate decisions from both the Bank of Japan and the European Central Bank, expected to hold rates steady, as corporate earnings from the U.S. technology sector presented a mixed picture.
Central Bank Policy and Market Reaction
The Federal Reserve reduced its benchmark interest rate by 25 basis points on Wednesday, a move largely anticipated by markets. Fed Chair Jerome Powell indicated that this might be the final rate cut for 2025, noting that policymakers could become more cautious if an ongoing federal government shutdown continued to impede the availability of crucial economic data, such as job and inflation reports.
Following Powell’s remarks, traders significantly adjusted their expectations for a December rate cut. Futures markets now imply a 67.8% probability that the Fed will maintain current rates at its next meeting on December 10, a sharp increase from the 9.1% chance projected just a day earlier, according to the CME Group’s FedWatch tool.
Attention is now turning to Asia, where the Bank of Japan is widely expected to keep its interest rates unchanged following its meeting on Thursday. U.S. Treasury Secretary Scott Bessent’s recent calls for speedier rate hikes to prevent excessive currency weakening could influence the BOJ’s future guidance on the pace of monetary policy adjustments. Later in the day, the European Central Bank is also forecast to hold rates steady for a third consecutive meeting.
Kyle Rodda, a senior market analyst at Capital.com in Melbourne, commented on the potential for volatility, stating that the Bank of Japan’s decision “shouldn’t be forgotten as something that could rock the region should they say or do something hawkish today.” Sally Auld, chief economist at National Australia Bank in Sydney, suggested in a podcast that the central banking narrative for the week would likely conclude “with a bit of a whimper” from both the BOJ and the ECB.
U.S.-China Trade Talks and Geopolitical Dynamics
President Donald Trump met with Chinese leader Xi Jinping in South Korea, with U.S. negotiators signaling a desire to re-establish a fragile trade war truce. Despite the efforts toward de-escalation, high tensions and persistent longer-term economic irritants are expected to remain between the two global powers.
Rodda noted that while a U.S.-China trade deal could “reignite animal spirits,” a significant portion of the positive news might already be factored into current market valuations, given the rally observed on Wall Street and its subsequent boost to the Asian region earlier in the week.
Separately, the KOSPI index in South Korea surged 1.1% after President Trump and South Korean President Lee Jae Myung finalized details of their trade deal. Shares in Samsung Electronics also saw a significant jump of 4.3% following its report of a 32% rise in third-quarter operating profit.
Mixed Signals from U.S. Tech Earnings
The ongoing corporate earnings season has introduced fresh investor anxiety, particularly concerning the substantial costs associated with the artificial intelligence (AI) buildout, even as the broader U.S. economy shows signs of robust health. This has placed pressure on several technology megacap stocks, which hold the largest weighting in the S&P 500 Index.
Meta forecast “notably larger” capital expenses for the upcoming year, despite its revenues exceeding market estimates, leading to a slump in its shares. Similarly, Microsoft’s spending on AI infrastructure reached a record of nearly $35 billion in the September quarter, also causing its shares to decline. However, rival tech giant Alphabet, Google’s parent company, defied the trend, with its shares rising in after-hours trading after surpassing revenue expectations.
Market Performance Overview
MSCI’s broadest index of Asia-Pacific shares outside Japan advanced 0.5%, while U.S. S&P 500 e-mini futures moved 0.4% higher. This followed a slight loss on Wall Street, which ended a four-day winning streak. Japan’s Nikkei 225 index fluctuated before settling 0.1% higher.
In currency markets, the U.S. dollar weakened 0.2% against the yen, trading at 152.455 yen. The dollar index, which measures the greenback’s strength against a basket of six major currencies, edged back from a two-week high, down 0.1% at 99.032. The euro firmed 0.1% to $1.1617. The yield on the U.S. 10-year Treasury bond traded around a three-week high of 4.068%, up 1 basis point. Gold was up 0.2% at $3,937.19 per ounce, and Brent crude was down 0.5% at $64.62 per barrel.
Outlook
Global markets are navigating a complex environment characterized by cautious central bank policy, ongoing geopolitical trade negotiations, and a mixed corporate earnings landscape. While the Federal Reserve’s rate cut and efforts to de-escalate trade tensions provided some uplift, investor caution persists, particularly regarding the future path of interest rates and the financial implications of significant investments in emerging technologies.
