Asia stocks gain, dollar droops as Fed chair sets stage for rate cut

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11 Jul, 2019 9:12 am

TOKYO (Reuters) – Asian stocks gained and the dollar drooped on Thursday after Federal Reserve Chair Jerome Powell reinforced prospects of a US interest rate cut later this month.

In an appearance before his congressional overseers on Wednesday, Powell confirmed that the US economy is still under threat from disappointing factory activity, tame inflation and a simmering trade war.

Powell said the central bank stands ready to “act as appropriate”.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose 0.8%, while Japan’s Nikkei .N225 added 0.4%.

The Shanghai Composite Index .SSEC advanced 0.8%, South Korea’s KOSPI .KS11 climbed 1% and Australian stocks edged up 0.3%.

For a graphic on the Asian stock markets, click

US stocks ended higher on Wednesday and the S&P 500 .SPX briefly crossed the 3,000-point mark for the first time following Powell’s remarks.

“The markets had hoped for Powell to express dovish views and they got what they wanted,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui DS Asset Management.

“The focus going forward is US data, such as tonight’s CPI, and whether the economy warrants a 50 basis point rate cut this month.”

A strong June US jobs report released earlier this month had curbed market expectations that the Fed could lower rates by 50 basis points (bps), and the markets had viewed a 25 bps cut as a more likely option.

But the Fed chair’s cautious stance on the world’s largest economy helped revive some bets on heftier easing at its next policy meeting on July 30-31.

The chance of a 50 bps cut rose to 27.6% from 3.3% on Tuesday, according to CME Group’s FedWatch tool.

Minutes from the Fed’ last meeting in mid-June, however, showed some policymakers felt there was not yet a strong case for easing.

The dollar index .DXY against a basket of six major currencies stood little changed at 97.001 after falling 0.4% overnight, when it pulled back from a three-week peak of 97.588 in the wake of Powell’s comments.

The greenback was down 0.35% at 108.080 yen JPY=, forced off a six-week high of 108.990 scaled the previous day.

The euro EUR= nudged up 0.1% to $1.1263 after gaining 0.4% on Wednesday.

The Australian dollar AUD=D4 was steady at $0.6962 following an overnight rise of 0.5% against the broadly weaker dollar. The surge helped the Aussie pull away from a 2-1/2-week trough of $0.6910.

The 10-year US Treasury yield US10YT=RR was at 2.038% after dropping on Wednesday from a three-week high of 2.113% following the Fed chair’s congressional testimony.

In commodities, US crude oil futures CLc1 extended the previous day’s large gains to touch $60.67 per barrel, their highest since May 23.

The contract had surged 4.5% on Wednesday after US crude inventories shrank and as major producers cut nearly a third of offshore Gulf of Mexico production ahead of an expected storm.

Brent crude LCOc1 brushed a six-week high of $67.15 per barrel and last traded at $66.91.

Spot gold XAU= rose to $1,426 an ounce, its highest since July 3 as reinforced expectations for a Fed rate cut boosted the non-yielding precious metal.

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