Fed minutes dent early rate cut hopes

HONG KONG

Most Asian markets fell yesterday, tracking another loss on Wall Street after minutes from the U.S. Federal Reserve's December meeting dampened hopes for an early interest rate cut.

The global rally that characterised the last months of 2023 has petered out at the start of the new year owing to worries the buying may have run a little ahead of itself, leading traders to take a breather.

The selling pressure was enhanced on Jan.3 when the Fed minutes showed officials expect to keep rates elevated for some time as they want to make sure they have inflation under control.

That dealt a blow to confidence on trading floors, where investors had been betting on a cut as soon as March after the bank's post-meeting statement last month showed they envisioned three reductions in 2024.

"Participants viewed the policy rate as likely at or near its peak for this tightening cycle," the minutes said, adding there was growing optimism among decision-makers that there was "clear progress" on inflation, which continues to fall.

Officials were keen to begin cutting this year but gave no indication of when.

Still, data on Jan. 3 provided fresh evidence that policymakers' measures were kicking in but not enough to send the economy into a recession. 

Focus now turns to the release of key non-farm payrolls data due today.

"Overall, the labor market remains strong, but demand is cooling, coming into better balance with supply," said Rubeela Farooqi at High Frequency Economics.

"These data will be welcome news for policymakers and support the Fed's view that the next move in rates will be lower, likely in the second quarter."

Tokyo dipped on Japan's first day back from a long break, while there were also losses in Shanghai, Sydney, Seoul, Singapore, Taipei and Bangkok.

Wellington, Manila, Mumbai and Jakarta rose while Hong Kong was flat.