On Monday, most Asian equity markets experienced gains alongside the yen, following remarks from US Federal Reserve Chair Jerome Powell, who indicated that “the time has come” to initiate interest rate cuts, potentially as early as next month.

This announcement provided a boost to investor sentiment, helping to alleviate the market disruptions seen in August.

However, analysts cautioned that unexpected economic data could undermine this optimism. Powell's comments contributed to a rise of over one percent in all three major indexes in New York.

Many Asian markets mirrored this trend, with Hong Kong, Mumbai, Shanghai, Sydney, Singapore, Taipei, Bangkok, and Wellington all showing positive performance.

Conversely, Tokyo and Seoul recorded declines. In Europe, Paris and Frankfurt opened slightly lower, while London remained closed for a holiday.

Traders are also monitoring the situation in the Middle East, where renewed tensions between Israel and Hezbollah have raised concerns about potential escalation.

During a highly anticipated address at a central bankers' symposium in Jackson Hole, Wyoming, Powell stated, “The time has come for policy to adjust.”

The trajectory is evident, and the timing and speed of interest rate reductions will be influenced by incoming data, the changing outlook, and the risk balance, he noted.

He expressed increased confidence that inflation is returning sustainably to the central bank's target of two percent.

Stock markets had already begun to climb in anticipation of the Federal Reserve initiating cuts from two-decade highs next month, with discussions primarily focused on the magnitude of the cuts and the potential for additional reductions.

Market participants are wagering on approximately one percentage point of cuts by year-end.

“Importantly there was a notable absence of caveats such as ‘gradual/gradualism’ as used by other Fed officials,” said National Australia Bank’s Tapas Strickland.

“The absence of caveats is likely what excited markets.”

“Yep, the Fed is ready to start slicing those interest rates. With the labour market cooling off and inflation finally inching closer to that elusive two per cent target, Powell served up exactly what Wall Street had been drooling over,” said independent analyst Stephen Innes.

“Right now, investors are in dreamland — having their cake, eating it too. The dream scenario? A series of rate cuts that somehow dodge the recession bullet.”

However, he warned that “the market’s next big move hinges on whether the latest US data points to a gentle slowdown or the first tremors of a full-blown recession. The stakes? They couldn’t be higher”.

Focus is now shifting to the upcoming release of various economic indicators, such as US employment figures, inflation rates, and personal income statistics.

Tokyo's stock market faced pressure from a strengthening yen, which appreciated on Friday following comments from Powell and a signal from Bank of Japan Governor Kazuo Ueda that interest rates could be increased again if inflation and economic conditions align with expectations.

The yen was trading at just under 144 per dollar during early trading hours.

Traders are closely monitoring developments in the Middle East after Israel conducted air strikes in Lebanon on Sunday, claiming to have destroyed "thousands" of Hezbollah rocket launchers and prevented a significant attack.

In response, Hezbollah announced it had launched its own drone and rocket offensive.

This news led to an increase in oil prices, although the rise was moderated by optimism that the situation would not escalate into a widespread conflict involving other regional powers, including Iran.

Hezbollah stated that its operation "was completed and accomplished."

Both primary oil contracts experienced gains on Monday, building on Friday's increase of over two percent, which was influenced by Powell's remarks on interest rates.

Key figures

Tokyo – Nikkei 225: DOWN 0.7 percent at 38,110.22 (close)

Hong Kong – Hang Seng Index: UP 1.1 per cent at 17,800.86

Shanghai – Composite: FLAT at 2,855.52 (close)

London – FTSE 100: Closed for a holiday

Dollar/yen: DOWN at 143.76 yen from 144.34 yen on Friday

Euro/dollar: DOWN at $1.1186 from $1.1193

Pound/dollar: DOWN at $1.3206 from $1.3209

Euro/pound: UP at 84.67 pence from 84.70 pence

West Texas Intermediate: UP 0.8 per cent at $75.46 per barrel

Brent North Sea Crude: UP 0.7 per cent at $78.73 per barrel

New York – Dow: UP 1.1 per cent at 41,175.08 (close)