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Greater China markets struggle for gains even as investors expect the Fed to cut rates

Key Points
  • Asia Pacific traded mixed on Thursday as markets in the Greater China region struggled for gains, while South Korea remained shut for a public holiday.
  • Investors are growing more confident that the U.S. Federal Reserve may slash interest rates this year to support an economy affected by the ongoing trade war.
  • Analysts said markets are already beginning to price in the possibility of rate cuts.

Asia Pacific traded mixed on Thursday as markets in the Greater China region struggled for gains, while South Korea remained shut for a public holiday.

The session followed overnight gains on Wall Street where investors grew more confident that the U.S. Federal Reserve may slash interest rates this year to support an economy affected by the ongoing trade war.

The Nikkei 225 in Japan erased earlier gains to finish near flat at 20,774.04 while the Topix index declined 0.34% to 1,524.91.

Australia's rose 0.39% to 6,383 as most sectors traded up. The heavily weighted financial subindex rose 0.6% as major banking stocks gained.

In China, the Shanghai composite fell 1.17% to 2,827.80 and the Shenzhen composite was down 2.08% at 1,463.70. Taiwan's Taiex fell 0.5% to 10,409.20 while Hong Kong's Hang Seng index was fractionally higher in the final hour of trade.

India's Nifty 50 was down 0.95% and the Sensex lost about 0.69%.

Analysts said that markets were already beginning to price in the possibility of rate cuts after Fed Chair Jerome Powell said the U.S. central bank will keep an eye on developments in the domestic economy, and would do what it must to "sustain the expansion."

"US markets firmed slightly overnight on the anticipation of rate cuts and news that President (Donald) Trump wants a deal with Mexico, although little progress was made," analysts at ANZ Research wrote in a morning note.

The U.S. and Mexico failed to reach a deal on immigration issues during a Wednesday meeting, just days before 5% tariffs on all Mexican imports are set to kick in. Trump announced those duties in a surprise tweet last week, saying they would be imposed "until such time as illegal migrants coming through Mexico, and into our Country, STOP."

Strategists at Singapore's DBS Bank pointed out in a note that Fed's comments over the past several days have turned "notably more dovish as uncertainties over the US's trade policies weigh."

"With the Fed seen succumbing to the aggressive easing priced into the rates space, attention will shift to the European Central Bank (ECB) today," the DBS strategists wrote, adding the ECB has a "lot less room" on policy easing than the U.S. central bank.

The European Central Bank is set to announce its monetary policy decision on Thursday. Meanwhile, a Reuters poll found that economists believe the ECB has no prospect of raising interest rates through to the end of 2020.

Asia-Pacific Market Indexes Chart

In the currency market, the U.S.dollar index, which measures the greenback against a basket of its peers, last traded at 97.305, lower than levels above 98.00 reached in the previous week.

The , considered a safe haven asset, traded at 108.18 to the dollar, strengthening from levels near 109.90 last week. Meanwhile, the changed hands at $0.6969, falling from an earlier high of $0.6975.

Oil prices advanced Thursday during Asian hours, after declining more than 2% overnight following an unexpected rise in U.S. crude inventories.

U.S. crude futures added 0.33% to $51.85 a barrel while the international benchmark Brent gained 0.26% to $60.79.

Crude inventories rose 6.8 million barrels whereas analysts had expected a 849,000-barrel drawdown, Reuters reported.