Asian Stocks Slide on Fed’s Unlikely March Rate Cut

Asian stocks traded in the red on Thursday after US stocks fell late Wednesday, while investors continued to anticipate significant reductions in the Federal Reserve’s interest rates this year despite the prospect of a later-than-expected start.

The MSCI’s broadest index of Asia-Pacific shares outside Japan lost 0.30% before recuperating 0.22% higher, while Japan’s Nikkei 225 index dropped 0.79% as the yen rose.

South Korea’s KOSPI gained 1.48% after data from S&P Global showed that the country’s manufacturing purchasing managers’ index (PMI) increased to 51.2 in January from 49.9 in the month earlier, marking the sector’s first expansion in 19 months.

Shanghai’s blue-chip CSI 300 index fell 0.40% as China’s factory activity remained in contraction at 49.2 last month, a slight increase from December’s reading of 49.0, according to data from the National Bureau of Statistics (NBS). The index was last trading 0.74% higher.

Fed Deems March Rate Cut Unlikely, NYCB Loss Stuns US Banks

The Fed left its interest rates unchanged for the fourth straight meeting on Wednesday, although it signaled the possibility of rate cuts not kicking off in March as inflation remains above their 2% target.

The Federal Open Market Committee (FOMC) kept its key policy rate at a 23-year high range of 5.25% and 5.50%, confirming Wall Street forecasts following a quarter-point rate hike in July.

Fed Chair Jerome Powell said policymakers are unlikely to start reducing interest rates at its next policy meeting in March until they are certain enough that inflation is under control and moving towards the central bank’s goal.

Still, Powell indicated that the officials were considering easing policy this year.

The news initially had no negative impact on markets, but they later weakened on Powell’s uncertainty over a March cut.

The US 10-year Treasury yield lost 12 basis points to 3.91% after the Fed’s decision, triggering a rally among Treasuries, which eased in Asia to push yields to 3.95%.

Treasury bonds also found support from the decline of regional US bank stocks, driven by more than a 20-year low of 38% from New York Community Bancorp (NYCB) Inc. following an unexpected $252 million or $0.27 per share loss in the fourth quarter.

The slump also spread to other bank stocks and added to a sharp retreat in the S&P 500 on Wednesday, while losses in Alphabet Inc. and Tesla Inc. already weighed the tech-heavy Nasdaq 100 index.

Sentiment recovered on Thursday to lift S&P 500 futures 0.26% higher, while Nasdaq futures added 0.44%.

US stock markets are currently awaiting earnings report releases from tech giants, including Apple Inc., Amazon.com Inc., and Meta Platforms Inc., which are due later in the day.