Fed cuts interest rates by 25 basis points
On Thursday, the Fed took the stage by cutting the Fed Funds Rate by 25 basis points to the target range of 4.50% – 4.75%. Lower financing costs can potentially increase corporate profits, especially for companies with higher capital requirements. The potential for better profits would boost demand for shares.
The Fed’s interest rate cut followed Trump’s victory in the US presidential election, which fueled a rally in US stock markets.
In the bond market, 10-year US Treasury yields fell to 4.328%, supporting demand for riskier assets.
Japanese household spending dampens expectations for BoJ interest rate hikes
On Friday, November 8, Japan’s household spending figures likely lowered expectations for a Bank of Japan rate hike in December. Household spending fell by 1.3% month-on-month in September, after rising 2% in August.
Falling private consumption could dampen demand-driven inflation and impact Japan’s economy, which contributes about 60% of GDP. A soft demand outlook would impact the BoJ’s plans for normalizing monetary policy. Importantly, a less aggressive interest rate policy from the BoJ could increase demand for Nikkei Index-listed stocks.
The USD/JPY trended higher on Friday morning, which also contributed to the morning gains on the Nikkei Index.