Fed's December Rate Cut Bets Intensify as Labor Market Signals Shift Market Sentiment Across Asia-Pacific

Policy Shift Reshapes Investor Positioning

A significant recalibration in Federal Reserve expectations has sent ripples through global markets this week. Traders are now pricing in an 85% probability of a December rate cut—a dramatic swing from just 30% a week ago. This reversal stems from increasingly dovish commentary from Fed officials Mary Daly and Christopher Waller, combined with labor market data pointing to vulnerabilities beneath the surface resilience. While U.S. markets observe the Thanksgiving holiday with limited Friday trading, Asia-Pacific equities are capitalizing on the dovish momentum, with the MSCI Asia-Pacific Index (ex-Japan) gaining 0.27% on Thursday as investors reposition for lower-for-longer interest rates.

Regional Equity Markets Capture Upside Momentum

Japan’s Nikkei and South Korea’s Kospi both surged over 1%, benefiting from renewed appetite for risk assets and weakening dollar conditions. The performance marks a potential turning point after three consecutive weeks of losses, signaling that market participants are ready to embrace the policy narrative shift. George Boubouras, managing director at K2 Asset Management, notes that labor market vulnerabilities could provide sufficient justification for monetary easing despite inflation remaining above the Federal Reserve’s target—a view increasingly shared across trading desks.

The Chinese Property Overhang Persists

Meanwhile, attention remains fixed on China’s troubled property sector, where developer China Vanke is seeking bondholder approval to postpone repayment on a 2 billion yuan ($282.6 million) onshore bond. This would mark the first extension for the state-backed firm, underscoring persistent financial stress within the real estate complex. Such developments continue to weigh on sentiment despite the broader bullish momentum in equity markets.

Currency Markets Realign Around Policy Divergence

The euro rallied to a one-week high of 1.16045 as the dollar index dipped 0.28% to settle around 99.523. Sterling appreciated to $1.3247 (a one-month peak) following constructive remarks on the UK’s fiscal framework, while the Japanese yen moved to 156.16 per dollar—a critical level where speculation mounts regarding potential intervention from Japanese authorities. Reports suggest the Bank of Japan may accelerate rate hike timelines as soon as January to defend the yen, which has depreciated roughly 100000 yen units against major baskets since early October due to persistent rate differentials and geopolitical concerns.

Cryptocurrency Rebounds on Risk-On Sentiment

Bitcoin reclaimed upside momentum Thursday, trading above $87.67K and posting a +0.22% daily gain as the softer rate outlook lifts pressure on higher-yielding assets. The move positions crypto to end a four-week losing streak. Gold prices held steady at $4,164.81 per ounce following Wednesday’s 0.8% advance, reflecting the complex interplay between inflation expectations and real rates.

What It Means for Investors

The convergence of Fed policy signaling, labor market softness, and currency divergence has fundamentally reset the game board for Q4 trading. The 85% probability of a December cut suggests that central bank caution—not confidence in growth—is now driving markets. This distinction matters: reversals tied to policy pivot tend to reward defensive positioning before eventually shifting back to cyclical trades as rate cuts take hold.