Asia markets outlook as Fed resumes rate cuts

Markets are celebrating a likely resumption of US rate cuts for the simple reason that policy scarcity is finally turning into policy supply. A dovish shift from Chair Powell compresses front-end yields, weakens the dollar at the margin, and improves the translation of nominal growth into earnings for globally exposed firms. That combination is supportive for Asia’s equity beta, particularly where domestic balance sheets have room to lean into cheaper external funding. It is also a reminder that the Fed is easing into softening labor demand, not into a productivity boom. The signal is accommodative, the justification is caution.

Equity strength across Japan, Korea, Australia, and the wider ex-Japan complex reflects this relief trade. The impulse is clean. The follow-through is conditional. With PCE due and core disinflation progress fragile, the next leg depends on whether services prices and tariff pass-through stay contained. If they re-accelerate, the welcome decline in term premia will stall and the dollar will find a floor, dulling the very support Asian indices enjoyed at the week’s open. In other words, the rally rests on inflation discipline as much as it does on Powell’s tone.

The policy change is straightforward. Futures now embed a high probability of a September cut and a glide path that takes the policy band lower through mid-2026. That recalibrates the expected average policy rate over the next four to six quarters and pushes global asset allocators to reassess cash as a competitor to risk assets. The technical effect appears modest day to day, yet it increases the relative value of duration for reserve managers and sovereign funds that have under-owned the long end. The macro effect is less benign. Easing into softer employment conditions acknowledges growth risk that does not vanish because the policy rate is lower by a quarter-point.

Relative to previous Fed pivots, the current moment is narrower. In 2019, the Fed eased against a manufacturing downturn with services resilient and trade friction the principal shock. Today, services stickiness and policy-driven costs sit alongside a capex cycle that is uneven across regions. Europe’s central bank is signaling patience, not urgency, while Asian central banks must balance imported disinflation from weaker US demand with domestic currency stability. The divergence is smaller than last year, but it has not closed. That matters for cross-rates and for how much Asia can cut without inviting pro-cyclical FX volatility.

Nvidia’s results add a second axis to the week. A strong print would validate the pricing of an AI-led earnings cycle and sustain risk appetite for supply chain names across North Asia. A weaker guide would not simply ding megacap multiples. It would raise questions about how quickly AI capex converts to free cash flow outside the US, and whether policy easing alone can carry valuations that had assumed a steadier shipment path. Institutional allocators will listen for color on export compliance, shipment mix, and any sign that US policy toward advanced chips is shifting the revenue geography faster than expected. For Asia, the issue is not headline sales, it is where the margins are allowed to land.

The bond market is the other test. A heavy week of US issuance collides with a duration bid that has only just re-emerged. If auction tails reappear, the long end will reprice and the supporting story for equities will look thinner. Reserve managers in Asia who are slowly adding duration will be price sensitive. A steeper curve driven by supply rather than growth hope helps banks, but it also tightens financial conditions if it persists. For now, the bid held, yet it would not take much inflation surprise to reverse last Friday’s rally.

Currencies are behaving as the policy map suggests. A softer dollar eases Asia’s imported inflation and takes pressure off central banks that had defended levels at the cost of domestic liquidity. The benefit is partial. Japan’s sensitivity to yield differentials remains acute. Korea and Taiwan gain from both the tech cycle and a friendlier dollar, but any quick move lower in the greenback will be checked if US data challenge the easing path. For Southeast Asia, the sweet spot is a patient dollar decline with a shallow US curve. That combination supports foreign inflows without forcing aggressive defense of the local unit.

Commodities are moving with the dollar, not against a structural shift in supply. Gold’s bid is a classic hedge against policy uncertainty and equity concentration. Oil is held in a fragile range. Geopolitical risk is real, yet demand softness caps the upside. For Asia’s importers, this mix is not a tax cut, but it is not an additional tax either. It buys time for fiscal authorities to keep consolidation plans on track while monetary policy does the near-term work.

What does this mean for sovereign funds and central bank reserve managers in the region. First, duration deserves a second look, but sizing should assume a stop-start disinflation path. Second, equity exposure concentrated in AI beneficiaries should be stress-tested for revenue geography and policy compliance, not only for unit shipment volatility. Third, FX policy can lean less defensively if the dollar drifts, though transparency around intervention bands will matter if US issuance undermines the long end. The opportunity set has improved. The risk budget has not expanded.

This is the Asia markets outlook after Fed rate cuts in practice. A friendlier Fed narrows global divergence and lowers the threshold for risk, yet it does not erase the constraint imposed by services inflation and supply-driven term premium. The window for Asia is open, but it is not wide. The posture to take is constructive with discipline. The signal from Washington reads accommodative. The intent remains cautious.