Asian stocks are gaining as interest rate cuts outweigh trade fears

Asian shares recovered after three days of losses as optimism over a possible Federal Reserve rate cut improved sentiment and offset renewed trade tensions between the US and China.

Stocks in Japan, South Korea and Australia all rose at the open after Fed Chairman Jerome Powell’s concerns about a weakening labor market boosted investor expectations for a rate cut in October. Contracts for the S&P 500 were little changed after the underlying gauge fell 0.2% as President Donald Trump said he might halt cooking oil trade with China.

The dollar posted losses and crude oil hovered near a five-month low, while gold traded near its peak. Spot silver rose after a volatile day on Tuesday that saw the price rise to a record high above $53.54 an ounce before falling sharply amid signs that a historic squeeze is beginning to ease. The two-year interest rate hovered around the lowest level since 2022.

Since the tariff-induced sell-off in April, global stocks have recovered sharply, buoyed by optimism about artificial intelligence and expectations of further monetary easing following the Fed’s rate cut in September. However, that rally is now facing headwinds as trade tensions between the US and China resurface, with both sides ramping up their rhetoric and signaling possible new restrictions on key technology.

“Markets appear to be viewing the rhetoric as arrogance and mismanagement before negotiations in South Korea get underway again in the coming weeks,” wrote Kyle Rodda, a senior market analyst at Capital.com in Melbourne.

Powell indicated that the US central bank is on track to deliver another quarter-of-a-percentage-point interest rate cut later this month, even as a government shutdown significantly worsens the impact on the economy. Swap contracts price in roughly 1.25 percentage points of interest rate cuts by the end of next year, compared to the current range of 4% to 4.25%. The Fed chairman said the economic outlook appeared unchanged since policymakers met in September, when they cut rates and forecast two more. this year.

Fed Boston President Susan Collins said the U.S. central bank should continue cutting interest rates this year to support the labor market.

Powell’s comments were a “strong endorsement” of bets on a rate cut by the Fed at its next meeting, JPMorgan Chase & Co.’s Michael Feroli said.

Earlier, US Trade Representative Jamieson Greer predicted that heightened tensions with China over export controls would ease, following talks between representatives of the two countries. That followed the Asian country’s sanctions on U.S. units of a South Korean shipping giant, escalating a dispute over maritime dominance.

Trump also sounded cautiously optimistic that a positive outcome could be achieved.

“We have an honest relationship with China, and I think it will work out. And if it doesn’t, that’s OK too,” Trump told reporters at the White House on Tuesday. “We’ve taken a lot of hits and we’ve been very successful.”

Meanwhile, the European Union is considering forcing Chinese companies to transfer technology to European companies if they want to operate locally, in an aggressive new push to make the bloc’s industry more competitive.

“Since the tariffs/trade issue is the only issue that has caused trouble in the stock market this year, we will all be watching developments here very closely,” said Matt Maley of Miller Tabak.

In Asia, the focus is on Japan. Investors are cautious heading into the country’s 20-year government bond auction on Wednesday, as the shocking collapse of the ruling coalition stokes new political uncertainty.

Longer-dated bonds fell after Sanae Takaichi’s surprise victory in the Liberal Democratic Party elections earlier this month, while prospects for her becoming prime minister have worsened following the collapse of the 26-year alliance last week.

Meanwhile, a record share of global fund managers said artificial intelligence stocks are in a bubble after a torrid rally this year, according to a Bank of America Corp. survey.

About 54% of respondents to the October poll said tech stocks looked too expensive, a reversal from last month, when nearly half had dismissed those concerns. Fears that global equities are overvalued also peaked in the latest survey.