Fed cheer lifts Asian shares, lowers US dollar

TOKYO • Asian shares advanced yesterday after comments from Federal Reserve officials suggested a US rate cut this year was on the cards, boosting investor sentiment and pushing the dollar lower.

The early momentum came from Wall Street's overnight rally, helping lift MSCI's broadest index of Asia-Pacific shares outside Japan 0.4 per cent, while Japan's Nikkei climbed 1.8 per cent and Hong Kong's Hang Seng advanced 0.5 per cent.

Underpinning the better mood in markets, Federal Reserve chairman Jerome Powell on Tuesday dropped his standard "patient" reference to any rate decision.

He instead said the Fed would respond "as appropriate" to the risks posed by a global trade war and other recent developments.

The comments were interpreted by investors as a clear nod to a Fed easing.

On Tuesday, Australia became the latest major central bank to cut rates, following New Zealand last month.

India is also expected to ease policy at today's meeting for its third straight rate cut.

"Powell gave the markets a reason to rally, but I think it's a short-covering bounce rather than a trend reversal. It's just the markets have priced in much of the bad news to come," said Mr Yasuo Sakuma, chief investment officer at Libra Investments.

On Wall Street, the Dow Jones Industrial Average, S&P 500 and Nasdaq Composite clocked their biggest one-day gains in five months, with all three ending up more than 2 per cent on Tuesday.

The rebound in stock prices also prompted US bond yields to step up from their recent lows, with the 10-year yield off its 21-month nadir of 2.061 per cent brushed earlier in the week. It last stood at 2.1 per cent.

Japan's benchmark 10-year bond yield fell to minus 0.13 per cent, its lowest level in nearly three years.

Uncertainties over how, or if, the United States will settle its trade disputes with its key trade partners - notably China - have kept many investors on edge.

US Treasury Secretary Steven Mnuchin meets People's Bank of China governor Yi Gang at the Group of 20 finance leaders' meeting this weekend in Japan, a Treasury spokesman said on Tuesday.

Chinese President Xi Jinping said the country's economy is stable, healthy and well placed to meet all risks and challenges, according to a transcript published by Xinhua news agency.

In the foreign exchange market, major currencies are treading water for now.

In commodity markets, oil prices fell yesterday, dragged down by a surprise gain in US inventories and supply concerns.

REUTERS

A version of this article appeared in the print edition of The Straits Times on June 06, 2019, with the headline 'Fed cheer lifts Asian shares, lowers US dollar'. Print Edition | Subscribe