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Asian shares rise as Powell reaffirms rate cuts: markets wrap

Asian shares rise as Powell reaffirms rate cuts: markets wrap
The Morgan Stanley headquarters in New York, US. (Photo: Angus Mordant/Bloomberg)

Stocks gained in Asia on Thursday after Jerome Powell reaffirmed his view that the Federal Reserve will likely cut interest rates this year. 

Australian and Japanese stocks advanced with the Topix index up over 1% to head for its best day in about two weeks. Markets in Hong Kong, mainland China and Taiwan are closed for a holiday.

US equity futures also edged higher in Asian trading after the S&P 500 index added 0.1% on Wednesday, while the tech-heavy Nasdaq 100 index gained 0.2%.

A dollar gauge steadied after it saw its biggest drop in nearly four weeks on Wednesday as price pressures in the US services industry eased. Growth in the sector diminished last month while an index of input costs decreased to a four-year low.

Fed chair Powell reiterated that the central bank will take a wait-and-see approach before reducing borrowing costs. However, his views that recent inflation figures did not “materially change” the overall picture offered support for risk assets.

In recent days, traders had scaled back their rate-cut expectations amid signs of economic resilience and a more cautious tone from a drumbeat of Fed officials. That has led to skepticism on whether Powell and his colleagues would be able to deliver on the central bank’s projection of three rate reductions this year.

“Powell says recent data has not materially changed the picture,” said Krishna Guha at Evercore. “We read this as confirming that the spasm of concern in markets that the economy might be too strong for the Fed to cut in June was overdone — and the base case remains June and three cuts this year.”

Treasuries were steady after ending broadly higher on Wednesday following a minor rally tilted toward the front end of the curve. Australian and New Zealand yields were little changed. In Japan, the breakeven inflation rate for the 10-year CPI-linked bonds rose one basis point to a record high.

Elsewhere, gold held near a fresh record set on Wednesday, when it topped $2,300 per ounce in a rally helped along by Powell’s support for potential rate cuts this year. West Texas Intermediate extended gains, poised for its fifth straight session of advances, leaving the US benchmark price at around $85 per barrel. Meanwhile, copper jumped to the highest since January 2023 amid fresh signs of demand.

Investors were also assessing the impact of the strongest earthquake to hit Taiwan in a quarter of a century. The shock killed at least nine people and has disrupted semiconductor production. Taiwan Semiconductor Manufacturing Co., a major supplier of chips to Apple Inc. and Nvidia Corp, moved some staff out of its production centers but said there was “no damage to critical tools”. 

Shares in Samsung Electronics and SK Hynix rose on expectations for higher chip prices due to production disruptions in Taiwan caused by the island’s latest earthquake.

The yen strengthened against the dollar on Thursday. Former Bank of Japan board member Makoto Sakurai had said Wednesday that the central bank is likely to wait until around October before mulling another interest rate hike. 

US economy

Despite a “solid” outlook for a US soft landing, stock investors’ expectations have gotten stretched, according to a note from Morgan Stanley’s global investment committee. The dynamic provides an opportunity to seek opportunities outside the S&P 500.

The US equity benchmark’s rally was driven by multiples expansion, with investors expecting improving profits despite cooling growth, Morgan Stanley Wealth Management chief investment officer Lisa Shalett wrote this week.

Investors appear to be showing “persistent” demand for US stocks, according to Citigroup Inc. strategists, suggesting there’s room for the rally to resume after the recent pullback.

More than $16-billion in net long positions was added to S&P 500 futures last week, while exchange-traded funds showed net inflows, strategists led by Chris Montagu wrote this week.

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