Asian stocks mixed after Wall Street rallies as 'time has come' for rate cuts

HONG KONG: Asian stocks were mixed Monday after U.S. stocks rallied close to their records on the expectation the Federal Reserve will start cutting interest rates soon to help the economy.

US. futures edged lower. Oil prices rose after Israel and the Lebanese militant group Hezbollah traded heavy fire early Sunday, triggering potential supply worries among the markets.

On Friday, Fed Chair Jerome Powell said the time had come to lower the main interest rate from a two-decade high.

“The time has come for policy to adjust,” Powell said. “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”

The dovish stance lifted the yen against the dollar, and the dollar-yen rate fell 0.30% to 143.95 on Monday's early trading.

The Bank of Japan's governor had hinted Friday that more hikes in interest rates may be coming if inflation stays on course to sustainably hit the 2% target. He also mentioned the bank was closely monitoring the recent gyrations in stock prices and currencies.

Japan's benchmark Nikkei 225 slipped 1.1% in morning trading to 37,944.68 due to the stronger currency.

Hong Kong's Hang Seng index added 1.0% to 17,786.31 while the Shanghai Composite index dipped 0.1%, at 2,852.34.

Australia's S&P/ASX 200 rose 0.7% to 8,076.10. South Korea's Kospi shed 0.2% to 2,695.24.

On Friday, the S&P 500 rose 1.1% to 5,634.61 after the index pulled within 0.6% of its all-time high set last month and has clawed back virtually all of its losses from a brief but scary summertime swoon.

The Dow Jones Industrial Average rose 1.1% to 41,175.08, crossing the 41,000 level for the first time since it set its own record in July, while the Nasdaq composite jumped 1.5% to 17,877.79.

Powell's speech marked a sharp turnaround for the Fed after it began hiking rates two years ago as inflation spiraled to its worst levels in generations. The Fed's goal was to make it so expensive for U.S. households and companies to borrow that it slowed the economy and stifled inflation.

While careful to say the task is not complete, Powell used the past tense to describe many of the conditions that sent inflation soaring after the pandemic, including a job market that “is no longer overheated.” That means the Fed can pay more attention to the other of its twin jobs: to protect an economy that's slowing but has so far defied many predictions for a recession.

That second part of his statement held back some of the details that Wall Street wanted so much to hear.

Treasury yields had already pulled back sharply in the bond market since April on expectations the Federal Reserve's next move would be to lower its main interest rate. The only questions were by how much the Fed would cut and how quickly it would move.

A danger is that traders have built their expectations too high, something they've frequently done in the past. If their predictions are wrong, which has also been a regular occurrence, that could mean Treasury yields have already pulled back too much since their decline began in the spring. That in turn could pressure all kinds of investments. On Thursday, for example, the S&P 500 fell to its worst loss in more than two weeks after Treasury yields climbed.

For Friday, at least, Powell's speech heled lead to a widespread rally across Wall Street.

The smaller stocks in the Russell 2000 jumped 3.2% to lead the market. Smaller companies can feel greater benefit from lower interest rates because of their need to borrow to grow.

In the S&P 500 index of big companies, more than 85% of the stocks climbed.

In the bond market, the yield on the 10-year Treasury fell to 3.79% from 3.86% late Thursday. The two-year Treasury yield, which moves more closely with expectations for action by the Fed, dropped to 3.91% from 4.01% late Thursday.

In energy trading, benchmark U.S. crude rose 51 cents to $75.34 a barrel. Brent crude, the international standard, rose 56 cents to $78.71 a barrel.

The euro cost $1.1184, down from $1.1190.