Before the bell: Fed cuts interest rates sharply, Asian stock markets gain wings

The U.S. central bank is cutting interest rates firmly. On Wall Street, the effect is minimal for now, but in Asia, investors are hitting buy this morning. 

The U.S. central bank cut interest rates 50 basis points. This now puts the dollar interest rate in a range of 4.75% to 5%. Just before the release of the interest rate decision, Wall Street was neither gaining nor losing, but after the announcement, both the S&P 500 and the Nasdaq rose nearly 1%. Profits were then taken, and eventually the U.S. equity markets closed with a loss of 0.3%. In the coming months, the Federal Reserve may cut interest rates another 50 basis points, and both 2025 and 2026 could see dollar rates drop another 100 basis points each time. The easing in the U.S. may also make it easier for the European Central Bank to ease further. That stock markets then do not go much higher immediately is logical. Investors have already largely anticipated the drop in interest rates. Yesterday, European stock markets adopted a wait-and-see attitude in anticipation of the U.S. interest rate cut. The Bel20 lost 0.4%. Ackermans & van Haaren (+2.2%) and Solvay (+3%) were in demand, while Lotus Bakeries (-2.3%) and Azelis (-3%) were sold off.

Asian stock markets are seeing nice gains this morning. In Japan, the Topix is up 2.5% and in Hong Kong the index is up 1.8%. Investors seem to be focusing mainly on the fact that interest rates will fall further. Perhaps we will soon see similar optimism on European stock markets? In Brussels today, Sequana Medical (before trading hours) and ABO-Group (after trading hours) publish their half-year results.

USD versus HKD 

Not only in the US, but also in Hong Kong. In fact, the Hong Kong currency (HKD) quotes relatively stable against the U.S. dollar (USD). The exchange rate has long been around 8 HKD for one USD. With interest rates in the US finally falling 50 basis points, Hong Kong investors are rightly assuming that interest rates in HKD will also fall. Stock prices in Hong Kong are therefore moving sharply higher, with debt-laden real estate companies such as China Resources Land (+9.3%), Longfor Group (+7.4%) and China Overseas Land & Investment (+6.4%) leading the way. But Tencent (+2%) and Alibaba (+3.3%) are also being bought in abundance this morning. 

No king in Vorst

NIO (-7.2%) is a candidate buyer of Audi’s factory in Vorst. So reports the newspaper De Tijd. The Chinese carmaker would submit a concrete offer to owner Volkswagen (+0%) by Monday. Like other Chinese car brands, NIO is focusing on foreign expansion. NIO stands out because it offers customers a “battery subscription. Instead of charging the battery, you could then exchange it for a full one. This would require a huge network of exchange stations. NIO has fans, but European consumers are holding back for now. Investors don’t believe in it either. A share of NIO cost $9.4 at the end of last year. Today it is $5. At the beginning of 2021, the price for a share was even $62. In the last quarter, the automaker still posted a loss of $694.4 million.

Did you know…

we can also expect a decision on interest rates in Great Britain, Norway and Turkey today? No doubt the British, Norwegians and Turks will look forward to that, but for the global economy, the U.S. interest rate obviously has a much bigger impact.