A powerful and unified wave of optimism is sweeping the globe, with Asian equities surging for a fourth consecutive day as the afterglow of a dovish Federal Reserve and the promise of imminent rate cuts continue to fuel a relentless rally.
This bullish sentiment is so potent that it is completely overshadowing a series of brewing political crises, from a government collapse in France to a leadership vacuum in Japan.
The buying has been broad and powerful. MSCI’s Asia-Pacific equities gauge has surged to its highest level since February 2021, a clear sign of deep and widespread conviction.
The rally is being led by the region’s technology titans, with giants like Taiwan Semiconductor Manufacturing Co. and Alibaba Group Holding Ltd. making the largest contributions to the gains.
A symphony of records and reversals
The bullish mood has been particularly explosive in Japan, where the aftershocks of Prime Minister Shigeru Ishiba’s resignation are still being felt.
The Nikkei 225 advanced to touch a new intraday record high, as the weaker yen continues to provide a powerful tailwind for the nation’s exporters.
In the bond market, a sense of calm has returned, with government bonds firming after a brutal slump on Monday.
This powerful Asian session is a direct extension of the action on Wall Street, where the S&P 500 rebounded on Monday. The catalyst remains the market’s unwavering belief that the Fed is on the verge of a major policy pivot.
Even as upcoming inflation data is expected to show a lack of progress, traders are now pricing in almost three rate cuts this year, starting with a near-certain move this month.
“For the next several days, markets in Asia are likely to take their cue from the US, with few regional catalysts in sight,” said Frederic Neumann, HSBC’s chief Asia economist.
Political storms on the horizon
But this powerful rally is taking place against a backdrop of significant and growing political instability. In France, Prime Minister Francois Bayrou has lost a confidence motion in parliament, forcing a third change of government in just over a year.
And in Indonesia, President Prabowo Subianto has abruptly replaced his highly respected finance minister, a move that risks renewed financial turmoil in Southeast Asia’s biggest economy following weeks of violent protests.
The rupiah slid on the news, and the central bank has already pledged to intervene to maintain stability.
This potent mix of market euphoria and political chaos sets the stage for a dramatic and uncertain few weeks.
The market’s conviction will be put to the ultimate test by a volley of crucial U.S. inflation and jobs data, which will provide the final verdict on the Fed’s path.
As Megan Horneman at Verdence Capital Advisors noted, the biggest question is no longer if the Fed will cut, but how many more will follow.
“After this week’s inflation data, we will get a better picture on what the Fed can do with rates,” Horneman said.
However, we are not out of the woods with inflation, and the Fed may deliver a ‘hawkish cut.’
A bullish start on Dalal Street
For now, the optimism is winning. The Indian market is poised to join the global rally, with the GIFT Nifty signaling a positive start for the Sensex and Nifty.
At 7:30 am, the index was quoting at 24,937.5, a gain of 0.15 percent, as Dalal Street looks to ride the powerful wave of rate-cut fever sweeping the globe.
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