Asian stocks showed a mixed performance on Monday following a rally in U.S. stocks, which neared record levels amid expectations of an imminent interest rate cut by the Federal Reserve to support the economy. U.S. futures saw a slight decline, while oil prices climbed after Israel and Hezbollah engaged in heavy fire exchange, raising concerns about potential supply disruptions.
Federal Reserve Chair Jerome Powell signaled a shift towards lowering the main interest rate from a two-decade high, stating that policy adjustments were necessary. The dovish stance led to a strengthening of the yen against the dollar, with the dollar-yen rate falling in early Monday trading.
The Bank of Japan's governor hinted at possible interest rate hikes if inflation trends continue towards the 2% target. Stock markets in Japan, Hong Kong, and Shanghai experienced varied movements, with Japan's Nikkei 225 slipping due to a stronger currency, while Hong Kong's Hang Seng index rose and Shanghai Composite index dipped slightly.
In the U.S., the S&P 500 and Dow Jones Industrial Average surged, nearing their previous record highs, while the Nasdaq composite also saw significant gains. Powell's remarks marked a notable shift in Fed policy, emphasizing the need to protect the economy amid slowing growth.
Treasury yields had already declined in anticipation of a rate cut, with market expectations focused on the extent and pace of the Fed's actions. Powell's speech on Friday spurred a broad rally on Wall Street, with smaller stocks benefiting the most from lower interest rates.
In the bond market, yields on 10-year and two-year Treasuries fell, reflecting market sentiment towards potential Fed actions. Energy prices rose, with benchmark U.S. crude and Brent crude both seeing increases. The euro weakened slightly against the dollar in Monday's trading.
