Quick takes on US Federal Reserve’s half-point cut 

THE US Federal Reserve has cut rates by 50 basis points (bps), a move aimed at boosting a cooling job market while continuing to push down on inflation.

Fed chair Jerome Powell said: “This decision reflects our growing confidence that with an appropriate recalibration of our policy stance, strength in the labour market can be maintained in a context of moderate growth and inflation moving sustainably down to 2 per cent.”

Here’s what analysts say about the rate cuts and how the move would affect economies and stock markets.

Impact on global economy and stock markets

Eastspring Investments head of multi-asset portfolio solutions Craig Bell:

• “Global growth momentum is decelerating. A weaker US labour market will likely limit wage growth over the longer-term, a key source of US consumer spending. US demand, which has been a key driver of global growth, will thus slow down further.”

• “While supply-side inflation risks could arise due to geopolitical tensions, such as a deepening of the Middle East conflict, we expect inflation to trend towards the Federal Reserve’s 2 per cent target, as a weakening US labour market dampens overall demand and the US economy.”

Impact on Singapore economy and stock market

Morningstar Research senior equity analyst Michael Makdad:

• “(The Monetary Authority of Singapore) is still maintaining the same upward slope of the Singapore nominal effective exchange rate (S$NEER), and the Singapore Overnight Rate Average (Sora) is around 3.45 per cent. While we could expect cuts in the Fed funds target rate to lower SGD interest rates, I think SGD rates may decline less than USD rates.”

Morningstar Research equity analyst Xavier Lee:

• “We think the rate cut will provide some near-term financing cost relief to our Singapore real estate investment trusts (Reits), developers and asset managers, with the biggest beneficiaries being those with the highest proportion of floating rate debt.”

• “For Singapore Reits, we expect transaction activity to pick up, with more Reits seeking growth through acquisitions. ”

• “For Singapore, we expect office rents to grow, benefiting Singapore office Reits like Keppel Reit, CapitaLand Integrated Commercial Trust and Suntec Reit.”

Impact on Asian economies and stock markets

Morningstar Research director of equity (Asia) Lorraine Tan:

• “We anticipate a more subdued reaction in Asian markets because the direction of China’s economy remains a key risk to Asia growth. However, the US rate cut gives the People’s Bank of China more flexibility to cut its interest rates without concerns over the renminbi depreciating at a faster pace. So, we could see more room for monetary policy in China.”

• “For Japan, the risk of slower global growth is likely to weigh on its own economy. However, the wage growth in Japan over the past year should provide some support but note that the recent June pay hike is a one-off bonus and doesn’t impact base pay. In short, we don’t see a huge positive uptick in domestic demand.”

Morningstar Research equity analyst Jeff Zhang:

• “In our view, the Fed’s rate cut will have minimal impact on China’s housing market given its isolation from the rest of the world.”

• “While supportive measures such as relaxing mortgage rules and encouraging local governments’ inventory buying are positive, we think that more time is needed before home demand growth turns positive, with buyers’ confidence still low.”

Straits Investment Management chief executive officer Manish Bhargava:

• “Lower US interest rates could boost risk appetite for Asian stocks, driving capital inflows into emerging markets as investors seek higher returns.”

• “The initial phase of the Fed’s normalisation cycle has been more assertive than expected, as the central bank recalibrated its policy focus to address labour market conditions.”

• “While inflation remains a key concern, recent softening in employment metrics has prompted the Fed to adjust its strategy, emphasising support for the job market in the near term.”

Dalma Capital chief executive officer Gary Dugan:

• “The Fed action should be taken very positively by Asian markets.”

• “It relieves the pressure of tight monetary policy and with likely weakness in the dollar it allows Asian central banks to ease monetary policy without fear of prompting weakness in their own currencies.”

• “We expect further strength in interest-rate-sensitive stocks such as financials and Reits.”

• “We also expect domestic consumer stocks to do well in anticipation of higher confidence among consumers. Borrowing costs have been penal and now they should be headed down.”

Jefferies global head of foreign exchange Brad Bechtel:

• “Price action post-Fed was a mild position flush and perhaps there will be more US dollar buying in Asia, particularly against the yen, won and yuan, while traders may take profits following the rallies in rupiah, ringgit and baht.”

• “It is good risk, which implies it is good for higher-beta currencies and those are generally currencies with higher real yields.”

• “But I don’t expect a big reaction in Asian foreign exchange (forex) markets as the yuan more or less anchors things.”

Lombard Odier senior macro strategist Homin Lee:

• “We believe that a narrowing interest gap and stabilising capital flows provide a more comfortable backdrop for Asia’s policymakers and investors.”

• “The Fed’s move has convinced Asia’s hold-outs to start their own rate cuts, with Australia, India, South Korea, and Thailand to start easing in the fourth quarter or early 2025, while the Philippines and Indonesia have already begun to cut.”

What’s next?

Abrdn Investments head of multi-asset investment solutions Ray Sharma-Ong:

• “Should the labour market continue to soften, driven by the two job reports we have from now till November’s Federal Open Market Committee, markets may push for a -50 bps cut from the Fed.”

• “Where equities are concerned, we expect long duration sectors such as global and Asian info tech and healthcare, as well as interest beneficiaries such as South Korea, Taiwan, India and Asian real estate investment trusts to benefit from an easing rate environment. In contrast, we expect shorter duration sectors like commodities and banks to lag.”

BMI analysts:

• “We think that the Fed will continue with its cutting cycle in the coming months, lowering its policy rate by a further 75 bps to 4.25 per cent by end-2024 and another 125 bps to 3 per cent by mid-2025.”

• “Our relatively dovish view is underpinned by our expectation that the unemployment rate will modestly overshoot the Fed’s forecast in the coming months, putting pressure on the central bank to loosen more aggressively against a reasonably benign inflation backdrop.”

ACY Securities currency analyst Luca Santos:

• “The Fed’s economic projections indicate that the federal funds rate could reach 4.4 per cent by the end of 2024 and fall further to 3.4 per cent by 2025.”

• “This gradual easing of rates reflects the Fed’s expectation that inflation will continue to decline, allowing them to loosen monetary policy as economic conditions stabilise.”

• “However, much remains uncertain, and the Fed will remain nimble in its approach, ready to adjust if inflation remains stubborn or if labour market conditions deteriorate.”