Asian Stocks Decline Amid Concerns Over Pace of U.S. Interest Rate Cuts

SadaNews - Asian stocks declined, influenced by the drops recorded on "Wall Street" on Monday, as traders grew more concerned about the pace of interest rate cuts by the Federal Reserve over the next year, following a nearly certain cut this week.

The regional stock index of "MSCI" fell by 0.3%. U.S. stock futures remained relatively stable in Asian trading after the "S&P 500" index dropped by 0.3% on Monday, while U.S. Treasury bonds joined a global bond sell-off. Australian bond yields rose ahead of the monetary policy decision, amid expectations from traders and economists for any shift towards a more hawkish tone.

Market tension came ahead of the Federal Reserve's decision on Wednesday, where a 25 basis point cut is widely expected. Some traders warned that the U.S. central bank might signal a slower pace of easing, with inflation remaining at high levels and a lack of new data during the shutdown causing divisions among Federal officials.

After this week's anticipated cut, financial markets lean towards expecting two additional rate cuts by the end of 2026, down from three cuts that were anticipated a week ago.

Investor Caution Extends to Asia

Frederick Neumann, Chief Economist for Asia at "HSBC," stated that "investors are pulling back their bets while waiting for the Federal Reserve's decision. With continued uncertainty regarding the Fed's path for 2026, investors will pay close attention to the Federal Open Market Committee's statement and its forecasts. Thus, the cautious tone in U.S. markets is spreading to Asia today."

Shares of "NVIDIA" rose in after-hours trading after President Donald Trump approved the company's license to export the artificial intelligence chip "H200" to China, in exchange for the government receiving 25% of the sales. Performance of semiconductor companies' stocks in Asia varied.

Meanwhile, "Goldman Sachs" clients reduced their bullish bets on artificial intelligence and U.S. stocks after last month's decline, with new survey data showing that "S&P 500" index expectations have become more conservative towards 2026.

Japan's Moves and Other Markets

The yen stabilized after its decline on Monday when a 7.6 magnitude earthquake struck off the northeastern coast of Japan. Construction and insurance company stocks rose on Tuesday.

Japanese Finance Minister Matsuki Katayama stated that she is closely monitoring market trends, with the yield on 10-year government bonds remaining close to 2%, a level not recorded since 2006.

"Bitcoin" dropped by about 1%. Gold, silver, copper, and oil prices remained within narrow ranges after Monday's declines when crude oil prices fell by nearly 2% in the previous session, highlighting Russia's exports to India.

Expansion of U.S. Bond Losses

The yield on U.S. Treasury bonds for 10 years reached its highest level since September during Monday's session, continuing the sell-off wave in Europe and Japan, supporting the strength of the dollar.

The results of the sale of three-year bonds worth $58 billion came with lower than expected yields on Monday, indicating stronger demand than anticipated. An auction for $39 billion in 10-year bonds is scheduled for Tuesday, and another for $22 billion in 30-year bonds on Thursday.

Kevin Hassett, the leading candidate to head the Fed, stated that planning the interest rate path over the next six months would be "irresponsible." The Director of the National Economic Council emphasized the importance of adhering to economic data in an interview with "CNBC."

John Canavan, Chief Analyst at "Oxford Economics," remarked, "It is expected that this week's rate cut will be accompanied by a hawkish tone and a long pause next year."