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Asian markets bounced back on Wednesday, recovering from sharp losses earlier in the week as investors drew optimism from Federal Reserve Chair Jerome Powell’s dovish comments suggesting more potential rate cuts ahead. However, gains were tempered by persistent concerns over renewed U.S.-China trade tensions and signs of ongoing economic weakness in China.
Powell’s Comments Spark Relief Rally
The regional upturn came after Powell signaled that the Fed was prepared to end quantitative tightening and might shift toward a more “neutral” policy stance amid a softening U.S. labor market. His remarks boosted expectations for two additional rate cuts in 2025, pushing Treasury yields lower and weakening the dollar — conditions that typically favor equities.
Following Powell’s speech, analysts at MUFG said that “markets are now confident that the Fed will prioritize growth stabilization,” with risk sentiment improving across Asia.
Japan’s Nikkei 225 jumped 1.4% after a 3% plunge in the prior session, while the TOPIX gained 1.3%. South Korea’s KOSPI climbed 1.7%, led by semiconductor and technology shares. In the Pacific region, Australia’s S&P/ASX 200 rose 0.9%, and Singapore’s Straits Times Index added 0.5%.
China and Hong Kong Lag on Trade Jitters
Chinese equities underperformed as trade uncertainty weighed on sentiment. The Shanghai Composite and CSI 300 indices were nearly flat, while Hong Kong’s Hang Seng rebounded 1% following heavy selling earlier in the week.
Investors remained cautious after U.S. President Donald Trump escalated rhetoric, threatening to cut trade ties in the cooking-oil sector and labeling China’s reduction in soybean imports as “economically hostile.” Beijing responded by vowing to defend its trade interests, reinforcing fears of another escalation between the two superpowers.
Deflation Persists in China
Economic data added to China’s challenges. The latest readings showed consumer prices fell 0.3% year-on-year in September, marking a second consecutive month of decline, while producer prices dropped 2.3%, reflecting weak demand and sustained deflationary pressure.
Analysts expect Beijing to roll out additional stimulus measures, including targeted fiscal support and monetary easing, to shore up domestic demand.
Outlook
While Powell’s comments provided a temporary lift to Asian equities, analysts cautioned that the region’s outlook remains clouded by trade frictions, weak Chinese data, and global growth concerns. Market attention will now turn to upcoming U.S. inflation data and trade negotiations, which could determine whether the recent rebound has room to extend.
