HONG KONG — Asian shares were mixed on Monday after US stocks rose close to records on expectations that the Federal Reserve will initiate a rate hike. lower interest rate to help the economy soon.
US futures fell slightly. Oil prices rose after Israel and the Lebanese militant group Hezbollah heavy fire traded Sunday morning, potentially raising supply concerns in the markets.
On Friday, Fed Chairman Jerome Powell said the time had come to cutting the key interest rate from its highest level in twenty years.
“It is time for policy to adapt,” Powell said. “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the changing outlook and the balance of risks.”
The dovish policy saw the yen rise against the dollar, with the dollar-yen exchange rate falling 0.30% to 143.95 in early trading on Monday.
The Bank of Japan governor on Friday hinted that more rate hikes could be coming if inflation remains on track to sustainably hit the 2% target. He also said the bank is closely monitoring recent swings in stock prices and currencies.
Japan’s benchmark Nikkei 225 fell 1.1% to 37,944.68 in morning trading on the strengthened currency.
Hong Kong’s Hang Seng index rose 1.0% to 17,786.31, while the Shanghai Composite index fell 0.1% to 2,852.34.
Australia’s S&P/ASX 200 rose 0.7% to 8,076.10. South Korea’s Kospi fell 0.2% to 2,695.24.
Friday is the S&The P 500 rose 1.1% to 5,634.61 after falling within 0.6% of last month’s all-time high and erasing nearly all losses from a brief but scary summer slump.
The Dow Jones Industrial Average rose 1.1% to 41,175.08, breaking above 41,000 for the first time since setting a record in July, while the Nasdaq Composite rose 1.5% to 17,877.79.
Powell’s speech marked a sharp turnaround for the Fed after it began raising rates two years ago as inflation soared to its highest level in generations. The Fed’s goal was to make it as expensive for American households and businesses to to borrow that it slowed down the economy And suppressed inflation.
Though he was careful to say the job wasn’t done, Powell used the past tense to describe many of the conditions that have fueled post-pandemic inflation, including a labor market that is “no longer overheated.” That means the Fed can focus more on the other of its two jobs: protecting an economy that is slowing but has so far defied many recession forecasts.
The second part of his statement withheld some of the details that Wall Street was eager to hear.
Treasury yields had already fallen sharply in the bond market since April, as expectations were that the Federal Reserve’s next move would be to cut its key interest rate. The only question was how much the Fed would cut and how quickly.
One danger is that traders have built up their expectations too high, something they have done often in the past. If their forecasts are wrong, which is also a common occurrence, it could mean that Treasury yields have already fallen too far since they began their decline in the spring. That, in turn, could put pressure on all sorts of investments. On Thursday, for example, the S&P 500 fell to their biggest loss in more than two weeks after U.S. Treasury yields rose.
At least on Friday, Powell’s speech sparked a broad rally on Wall Street.
The smaller stocks in the Russell 2000 rose 3.2% to lead the market. Smaller companies can benefit more from lower interest rates because they need to borrow to grow.
In the S&P 500 index of large companies, more than 85% of shares rose.
In the bond market, the yield on the 10-year Treasury note fell to 3.79% from 3.86% late Thursday. The yield on the 2-year Treasury note, which more closely aligns with expectations for Fed action, fell to 3.91% from 4.01% late Thursday.
In energy trading, U.S. benchmark 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.