SYDNEY — Chinese shares led Asia higher on Monday as investors gave a cautious welcome to the likely resumption of US interest rate cuts, while hoping AI-superstar Nvidia’s results this week will help justify the sector’s stratospheric valuations.
Federal Reserve Chair Jerome Powell’s dovish change of course has seen futures price in an 84 percent chance of a quarter-point rate cut in September, and at least 100 basis points of easing to 3.25-3.5 percent by the middle of next year.
The shift shoved Treasury yields and the dollar lower, flattering the outlook for corporate earnings, though it also implies policymakers now see more danger of a downturn in employment and the economy.
“The news reinforces our view that the Fed will ease in response to softening labor demand and that risk to our forecast for a material downshift in global growth this quarter is skewed to the upside,” said Bruce Kasman, global head of economic research at JPMorgan.
The market’s euphoria will also be tested by a reading on US personal consumption prices on Friday that is expected to show core inflation creeping up to its highest since late 2023 at 2.9 percent.
“The report should reinforce the message that a rebound in service price inflation is combining with tariff-related pressures to push core inflation towards a 4 percent annualised rate,” warned Kasman.
Any upside surprise to inflation would also challenge the rally in longer-dated Treasuries, especially given a whopping $183 billion in new debt is being sold this week.
Yields on 10-year notes held steady at 4.268 percent, having dived 7 basis points on Friday.
The influential head of the New York Fed John Williams is due to speak later on Monday and markets will be keen to hear if he shares Powell’s outlook on policy.
For now, investors were content to follow Wall Street’s lead and Japan’s Nikkei rose 0.4 percent. South Korean stocks gained 1.1 percent and Australia’s index 0.2 percent.
MSCI’s broadest index of Asia-Pacific shares outside Japan added 1.5 percent. Chinese blue chips extended their recent rousing run with a gain of 1.4 percent, taking the index to its highest since mid-2022.
