Asian equities are set to follow Wall Street peers higher after several Federal Reserve (Fed) policymakers hinted at further easing and as optimism surged that China was poised to announce stimulus measures.

Tokyo and Hong Kong futures benchmarks pointed to increases of at least 1%, though Sydney shares looked flat-to-lower. US stock futures edged down after equities eked out gains on Monday with the S&P 500 advancing 0.3%, a whisker away from last week’s all-time high. 

Data released Monday showed US business activity expanded at a slightly slower pace in early September, while expectations deteriorated and a gauge of prices received climbed to a six-month high, stoking confidence the world’s largest economy can nail a soft landing. 

“This is a somewhat inconclusive report, and therefore it shouldn’t alter Fed expectations dramatically,” according to Vital Knowledge’s Adam Crisafulli. “The flash purchasing managers indices do suggest the US economy is on reasonably sound footing, especially compared to Europe.”

Investors are now awaiting data on the Fed’s preferred price metric and US personal spending later this week. 

In Asia, speculation has surged that Beijing will ramp up efforts to revive growth. Authorities announced Monday that central bank chief Pan Gongsheng will hold a press conference Tuesday on financial support for economic development. Minutes later, the People’s Bank of China (PBOC) lowered the 14-day reverse repurchase rate, catching up with reductions initiated in July.

Taken together, the moves bolster expectations for the PBOC to lower rates, after a slew of disappointing data in August raised concerns that the government could miss its annual growth target of around 5% without unleashing more support.

In the US, traders have been wagering on nearly three-quarters of a point of policy easing by year end, suggesting at least one more jumbo rate cut is in store. Wall Street and policymakers alike are awaiting the jobs data on Friday for more clues on the direction of the economy. 

Chicago Fed president Austan Goolsbee said with inflation approaching the central bank’s target the focus should turn to the labor market and “that likely means many more rate cuts over the next year”.

Neel Kashkari at the Minneapolis Fed also pointed to weakness in the job market, saying he backs lowering interest rates by another half percentage point by year end. His counterpart at the Atlanta Fed, Raphael Bostic took a moderate stance. Starting the central bank’s cutting cycle with a large step would help bring interest rates closer to neutral levels, but officials should not commit to a cadence of outsize moves, according to Bostic.

Yields on policy-sensitive US two-year notes fell to 3.58% while longer dated Treasuries were little changed. US government bonds had been under pressure with the Treasury slated to auction US$183 billion in front-end supply and up to US$25 billion of new issuance in corporates expected this week.

Wall Street strategist Ed Yardeni had a warning for central bankers, saying last week’s aggressive rate cut could cause inflation to resurface if central bankers don’t tread carefully. The Fed is ignoring the upcoming presidential election where both candidates are proposing policies that could trigger inflation, he added.

Gold reached another record high on Monday as the worsening strife in the Middle East fueled wagers on further price gains in the metal due to its haven status. Oil edged higher in early trading Tuesday.

Australia is expected to remain a global outlier in the easing cycle on Tuesday. Economists see the Reserve Bank of Australia holding the cash rate at a 12-year high of 4.35%, and keeping it there until at least February.

  - Bloomberg