Asian Stock Markets: Optimism prevails as China cuts interest rates, Fed hawks retreat ahead of US inflation

• Market sentiment remains mildly positive, upbeat in the Asia-Pacific region.
• PBoC cuts Reverses Repo but fears of China’s slower recovery prods optimists.
• Fed bets suggest no rate hike in June FOMC but US CPI is the key to confirm hawkish halt.
• Aussie, Japan data came in mixed and challenge the risk-on mood amid Sino-American tension.

Equities in the Asia-Pacific region trace their global counterparts on early Tuesday as market players appear mostly positive of witnessing no rate hikes from the US Federal Reserve (Fed) while also cheering the Chinese rate cut.

That said, MSCI’s Index of Asia-Pacific shares outside Japan renews monthly high with around 1.0% intraday gains heading into Tuesday’s European session. On the same line, Japan’s Nikkei 225 also portrays the upbeat sentiment as it rises nearly 2.0% to 33,072.

Elsewhere, Australia’s ASX200 and New Zealand’s NZX50 are both benefiting from the People’s Bank of China’s (PBoC) rate cut and hopes of no rate hike from the Fed while posting mild gains despite mixed data at home. It should be noted that the PBoC cuts the Repo Rate to 1.9% from 2.0% and propels the Chinese equities, as well as risk-on mood in Asia.

On a broader front, the S&P500 Futures seesaw around 4,345 as it struggles to cross the highest level since April 2022, marked the previous day. That said, the US 10-year and two-year Treasury bond yields drop for the second consecutive day to around 3.72% and 4.56% in that order.

Alternatively, fears of China’s slower rebound gain momentum as   Bloomberg said, “China’s central bank cut a short-term policy interest rate, easing its monetary stance to help aid the economy’s recovery.”

On the same line are the market’s fears of the US-China tussles as the US expands its ban on imports from Xinjiang. China vows to protect China firms against any US sanctions, per Reuters. Recently, Bloomberg released prepared remarks of US Treasury Secretary Janet Yellen’s scheduled Testimony in front of the House Financial Services Committee as she said that the International Monetary Fund (IMF) and the World Bank (WB) serve as important counterweights to non-transparent, unsustainable lending from others, like China.

Above all, receding odds of the Federal Reserve’s (Fed) hawkish move during Wednesday’s Federal Open Market Committee (FOMC) weigh on the US Dollar and improve the market’s mood.

That said, the CME’s FedWatch Tool suggests more than 70% chance of the Fed’s inaction on Wednesday while suggesting nearly 80% odds favoring the 0.25% rate increase in July.

Also read: S&P500 Futures hesitates tracing Wall Street at yearly top, yields drop as markets await US inflation