The records came after Fed Chair Jerome Powell pointed to “modest” progress in the battle to bring down inflation
Asian markets diverged Wednesday after new records on Wall Street and remarks by the Federal Reserve chief that indicated the US central bank would cut interest rates later this year, without offering a clear timeframe.
While Europe’s main stock markets were pulled down Tuesday by political uncertainty in France, the S&P 500 and Nasdaq in the US rose to all-time highs.
The records came after Fed Chair Jerome Powell pointed to “modest” progress in the battle to bring down inflation.
Although his Senate testimony did not indicate when cuts may come, analysts are predicting the first in September and a second before year’s end.
Fed Chair Powell’s testimony overnight was pervaded with a somewhat dovish tone, mentioning that the Fed was confronted with ‘two-sided risks’, Alvin Tan of RBC Capital Markets said in a note.
He suggested that the Fed’s reaction function is shifting to an easing bias given the ‘significantly’ cooling labour market, but he nonetheless declined to offer a clear timeline on rate cuts, Tan said.
In any event, the market has been pricing in almost two full Fed rate cuts this year, and Powell’s statements did not shift those expectations much, he added.
Thursday’s CPI data could be crucial in determining whether the probability of a September rate cut increases further from the current 70%, said SPI Asset Management’s Stephen Innes.
In Asia on Wednesday, Hong Kong stocks dropped after increasing more than 1% in morning trade.
China consumer prices rose 0.2% on-year in June, official data showed Wednesday, but fell short of analyst expectations and were down from May’s 0.3% rise.
While the world’s second-biggest economy emerged from a period of deflation in February, prices have increased at a modest rate, in contrast to other major economies which have seen prices surge.
Zhiwei Zhang of Pinpoint Asset Management said, with weak domestic demand and fiscal spending, and a high real interest rate, the risk of deflation in China has not disappeared.
China relies on exports to be a key driver for growth in the first half of this year. In the long term China will need a rebound of domestic demand to drive the economy, he added.
If the Fed does cut rates in September, he added, China’s central bank could follow suit.
Tokyo stocks gained, with the benchmark Nikkei 225 hitting an all-time high.
Shanghai, Sydney, Mumbai and Manila were down.
Seoul was flat, while Taipei, Wellington, Bangkok, Singapore, Jakarta and Kuala Lumpur all rose.
