Asian stock markets moved higher on Tuesday as expectations grew that the U.S. Federal Reserve may cut interest rates in December. The renewed optimism also encouraged investors to increase exposure to global technology stocks, despite ongoing concerns that the sector may be overheating.
MSCI’s broad Asia-Pacific index outside Japan rose 0.75%, led mainly by tech shares. The index recovered part of last week’s 4% decline and is still on track for its first monthly drop since March.
However, European futures were down 0.2%, pointing to a weaker start for the region.
U.S. Treasury yields held steady, with the benchmark 10-year note flat at 4.038%. The two-year yield—often tied to rate expectations—was unchanged at 3.495% in Asian trading after a small decline in the previous session.
Japan’s Nikkei gained just 0.1% as it reopened after a Monday holiday, following a 3.5% weekly slide driven by risk-off sentiment. Hong Kong’s Hang Seng Index rose nearly 0.6%, while China’s CSI300 advanced 1.1%.
Rate-cut expectations rise sharply
Rate-cut speculation increased after Fed Governor Christopher Waller said recent data continues to show weakness in the U.S. labor market, enough to justify another 25-basis-point reduction.
According to the CME FedWatch Tool, markets now price in an 85.1% chance of a December cut, up from 42.4% just one week ago. The next Fed meeting is scheduled for December 9–10.
Despite the sharp shift in expectations, currency markets showed little reaction. The euro traded at $1.15125 after small overnight gains, while the dollar index held near 100.25, retaining most of last week’s nearly 1% rise.
Jack Siu, Head of Discretionary Portfolio Management for Asia at Lombard Odier, said he expects the Fed to cut in December, pause for several months, and then deliver more reductions in the second half of next year.
He added that the ECB and Swiss National Bank appear to have ended their easing cycles, while the Bank of Japan is expected to stay dovish even as its next move is likely a rate hike.
Siu noted that rate differentials point to a weaker dollar ahead, arguing that the recent rebound in the currency is “not sustainable.”
Geopolitical tensions remain in view
Markets also kept a close eye on ongoing tensions between Japan and China. The dispute was triggered by comments from Japan’s Prime Minister Sanae Takaichi suggesting a Chinese attack on Taiwan could prompt a Japanese military response.
Takaichi spoke with U.S. President Donald Trump on Tuesday, following Trump’s call with China’s President Xi Jinping on Monday. She said Trump clarified the current state of U.S.-China relations during their discussion.
Trump also announced plans to visit Beijing in April at the invitation of the Chinese government. The planned trip was seen as another sign that political ties between the two nations may be improving after agreeing to a trade-war truce.
According to Marcella Chow, market strategist at JPMorgan Asset Management, this easing of tensions could help reduce volatility in global markets.
Nasdaq futures and S&P 500 futures both edged slightly lower during Asian trading hours.
Commodities mixed ahead of U.S. holiday
U.S. stock and bond markets will be closed on Thursday for the Thanksgiving holiday and will operate for a half-day on Friday.
In commodities, Brent crude fell 0.52% to $63.04 per barrel, while U.S. crude slipped 0.48% to $58.56.
Spot gold held steady at $4,141 an ounce.
