Asian share markets experienced a notable rally, driven predominantly by optimism surrounding a potential interest rate cut by the U.S. Federal Reserve in December. The MSCI’s broadest index of Asia-Pacific shares outside Japan surged by 1%, signaling a recovery from the previous week’s 4% decline, although it remained on course for a monthly drop of 3.8%, marking its first such decline since March.
Japan’s Nikkei index rose by 0.8% as markets reopened after a holiday, following a challenging week that saw it drop 3.5% under increased risk-off sentiment. Charlie Aitken, an investment director at Regal Partners, noted the positive momentum in various asset classes, suggesting that the market behavior was characteristic of a bull market phase—a sharp pullback followed by recovery, notably among undervalued growth stocks and cyclicals.
Expectations regarding a U.S. rate cut intensified after Federal Reserve Governor Christopher Waller indicated that existing data pointed to a sufficiently weak job market to justify a quarter-point reduction in interest rates. Markets are now anticipating an 85.1% likelihood of a 25 basis point cut during the Fed’s December meeting, a significant increase from 42.4% just a week prior. Further affirming this sentiment, San Francisco Federal Reserve Bank President Mary Daly expressed her support for a rate reduction in light of the weakening job market.
In Asia, benchmark 10-year Treasury note yields remained steady at 4.0344%, while the two-year yield held firm at 3.4872%, maintaining stability following a recent drop. The dollar showed slight weakness this week, with the euro trading at $1.1522. However, the Japanese yen remained under pressure, trading at 156.95 per dollar, close to its recent 10-month low of 157.90.
Amidst these developments, a diplomatic row between Tokyo and Beijing has surfaced, arising from comments made by Japan’s Prime Minister Sanae Takaichi regarding potential military responses to a Chinese attack on Taiwan. In light of these tensions, Takaichi held discussions with U.S. President Donald Trump, who, in a recent conversation with Chinese President Xi Jinping, addressed U.S.-China relations. Trump is set to visit Beijing in April, indicating a potential thaw in diplomatic ties following periods of strained relations due to trade disputes.
On Wall Street, key indices showed promising gains, with the Dow Jones Industrial Average rising by 0.44%, the S&P 500 up by 1.55%, and the Nasdaq Composite gaining 2.69%. This marked the Nasdaq’s most significant daily percentage increase since mid-May and its strongest two-day performance since November 2024. The U.S. stock and bond markets will be closed for the Thanksgiving holiday, with a half-day trading session scheduled for Friday.
In the commodities market, Brent crude futures experienced a slight decline of 0.2% to $63.16 per barrel, while U.S. crude also fell by 0.2% to $58.70 per barrel. Gold prices dipped 0.2% to $4,130 an ounce.
