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Markets

Asian equities little changed as bets for aggressive Fed rate cut fade

Overnight slump in US stocks also damps investor appetite

HONG KONG (Nikkei Markets) -- Asian shares outside of Japan ended little changed on Wednesday after comments by U.S. Federal Reserve officials tempered expectations of a 50 basis-point rate cut next month.

The Nikkei Asia300 Index of companies outside Japan rose less than 0.1% to close at 1,313.43.

The quiet performance of stocks in Asia came after U.S. equities suffered their biggest decline this month following remarks by Fed Chair Jerome Powell and St. Louis Federal Reserve Bank President James Bullard. The comments by the policymakers made investors reassess the likelihood of the U.S. central bank cutting rates by half a percentage point next month.

Bullard, who was the only Fed member to vote for a rate cut last week and is among the most dovish Fed officials, said yesterday that that a 50 basis-point rate cut "would be overdone" and that a 25 basis-point rate cut is considered more appropriate.

After the Fed's last meeting indicated that it was willing to cut rates to support the economy, the primary question has been how much monetary accommodation the U.S. central bank would provide. Prior to Bullard's comments, the probability of a 50 basis-point rate cut at the July meeting were more than 40% and it was at 60% for a 25 basis-point cut.

Following Bullard's comments yesterday, the odds of a 50 basis-point rate cut dropped to less than 1-in-4.

Fed Chair Jerome Powell's remarks too dimmed chances of an aggressive rate cut. While Powell said worries on the trade front and the world economy remained, Fed officials were "grappling" with whether those uncertainties would continue to weigh on the outlook and thus require more policy accommodation.

The dollar index rebounded and the S&P 500 Index declined about a percent.

DBS Bank said traders "were taken aback" by the push back by the policymakers against aggressive rate cut bets. The Fed basically maintained that any rate cut will be an insurance move to guard against global headwinds from the trade war, it added.

Heavyweight Taiwan Semiconductor Manufacturing Co. declined 1.7% after the technology dominated Nasdaq composite index fell 1.5% on Tuesday.

Hong Kong-shares of China Mobile added 0.1%. The company plans to set up more than 50,000 base stations and provide commercial services based on 5G mobile networks in more than 50 cities across the country this year, Chairman Yang Jie said.

South Korean chipmaker SK Hynix jumped 3.3% and its peer Samsung Electronics added 0.2% after U.S.-based Micron Technology said demand for chips would recover later this year.

Astro Malaysia Holdings fell 2% after the media and entertainment firm said first-quarter net profit rose less than 1% year-on-year and revenue declined 6%.

Thailand's SET Index ended little changed. Earlier in the day, the Bank of Thailand left the one-day repurchase rate at 1.75% as expected. The central bank cut its forecast for economic growth and exports for the current year.

--Nimesh Vora

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