Asia Stocks Face Muted Start; Yen Near 4-Week Low: Markets Wrap

Jeannie Matthews
July 12, 2019

Asian stocks posted modest gains, following their US counterparts, after comments by Federal Reserve Chairman Jerome Powell cemented market bets for a rate cut this month. Nasdaq-100 futures gained 40.25 points, or 0.5%, to 7,885.50.

Powell is expected to discuss decelerating economic activity and increased risks over the next two days - further indicating the Fed's readiness to cut interest rates as appropriate.

MSCI's broadest index of Asia-Pacific shares outdoors Japan dropped 0.5% to its lowest since June 20.

The Shanghai Composite Index edged up 0.3 per cent, South Korea's KOSPI climbed 1.2 per cent and Australian stocks advanced 0.6 per cent. Asian stocks are also opened in the green, taking their cues from gains in U.S. stocks, with the S&P 500 breaching the 3000 level for the first time ever before moderating.

"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. Expectations for a 50 basis point (bps) rate cut at a Fed meeting later this month have evaporated, but investors still expect a 25 bps cut due to weak inflation and worries about growing business fallout from the US-China trade war.

"We still think the odds favour a 25 bps "insurance" cut", said Kevin Cummins, a senior USA economist at NatWest Markets. Fed officials have helped spur a rally in world equities in recent weeks by taking an increasingly dovish or subdued tone regarding monetary policy, fuelling expectations they would cut borrowing costs sharply to support a stuttering economy.

The greenback index versus a basket of six main currencies was little modified at 97.374.

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'Although our United States economists have pencilled in a total of 50 bps of rate cuts for 2019, this does not change our near-term view for moderate dollar gains within G10, ' wrote Daria Parkhomenko, strategist at RBC Capital Markets. The dollar could continue to creep higher if Powell's comments on the U.S. economy are perceived as neutral or even slightly hawkish, which would support the argument that additional rate cuts will be limited.

The greenback modified arms at 108.75 yen, having risen as much as 108.81 yen within the earlier session, its highest in additional than a month. It was still some distance away from a six-month trough of 106.780 set on June 25.

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

Australian stocks fell 0.4 percent and the Korean market was 0.3 percent lower.

Wednesday's testimony from Fed Chair Jerome Powell and the FOMC meeting minutes helped rekindle aggressive easing bets which boosted equities at the expense of the US Dollar.

In commodity markets, oil prices rose as US crude inventories shrank more than expected and as major producers evacuated rigs in the Gulf of Mexico before a storm. Oil's climb was triggered by constrained U.S. supplies, with production in the Gulf of Mexico being reduced by about a third given the possibility of an incoming hurricane, along with the steep decline reported in USA crude inventories. Brent crude futures gained 64 cents to $64.80.

TOKYO, July 10 (Reuters) - The dollar edged toward a three-week high against a basket of major currencies on Wednesday, as an unwinding of bets on deep USA interest rate cuts pushed Treasury yields higher.

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