HONG KONG (Nikkei Markets) -- Asian stocks outside of Japan declined Monday, as investors digested expectations of a smaller rate cut in the U.S.
The Nikkei Asia300 Index fell 0.5% to 1,322.64. U.S. equities had pulled back on Friday amid uncertainty over the quantum of the Federal Reserve's widely expected rate cut. Expectations for a 50- basis-point cut had risen after New York Fed President John Williams during a speech on Thursday stressed the importance of acting "quickly to lower rates at the first sign of economic distress." Later, a New York Fed representative said the speech was academic in nature and "not about potential policy actions," according to Reuters.
The probability of a 50-basis-point interest rate cut by the Fed this month is currently at about 24.50%, according to CME's FedWatch Tool, down from about 44% on Friday in Asia and about 60% soon after Williams' comments last week.
Piotr Matys, a strategist at Rabobank, expects a 25-basis-point cut next week unless a fresh set of U.S. data is "particularly disappointing" or trade negotiations unravel.
"This would be an insurance cut rather than the beginning of an easing cycle," Matys wrote in a note. Still, "if the Fed does not sound sufficiently dovish to justify current market expectations for more cuts in the coming months, the appetite for risky assets, including emerging markets, is set to deteriorate."
CME's FedWatch Tool indicates 100% probability of a rate cut at the meeting on July 30 and 31.
On Monday, Hyundai Motor fell 1.1% in Seoul despite reporting a 31.2% increase in profit for the April-to-June period and a 9.1% rise in revenue. The carmaker expects a prolonged sluggish growth in China, partly due to the ongoing Sino-American trade war, according to Reuters.
Great Wall Motor ended 1.8% lower in Hong Kong after saying it expects profit for the first half of the year to have fallen 58.6% from a year ago, and trimming its 2019 sales volume target. Jefferies, Credit Suisse, and Bocom International cut their price targets on the stock after the announcement.
Electric carmaker BYD added 0.6%. The company on Friday said it signed a cooperation agreement with Japanese auto giant Toyota Motor to jointly develop battery-driven electric sedans and sport-utility vehicles in China.
On Sunday, anti-government protesters in Hong Kong took to the streets once again demanding the complete withdrawal of a controversial extradition bill. The demonstrations on Sunday turned violent as local police reportedly fired tear gas canisters at protesters, while a large group of men in white shirts later on used sticks to attack people that they believed were returning from protests.