Stock markets rise after Powell hints at US rate cut

Jerome-Powell-AP — Jerome Powell’s remarks came before an update of the US consumer price index, which is expected to show a further slowdown. (AP pic)

LONDON:

Asian and European stock markets rose on Thursday following more record-highs on Wall Street as Federal Reserve boss Jerome Powell hinted at a September cut to US interest rates.

On a second day of testimony to lawmakers, Powell said decision-makers would not wait until inflation had hit the bank’s 2% target before loosening monetary policy, adding: “If you waited that long, you’ve probably waited too long.”

That weighed on the dollar, while official data showing the UK’s economy has grown faster than thought and boosted the pound, with analysts saying it could force the Bank of England to delay cutting interest rates until September.

In the US, Powell’s remarks came before Thursday’s update of the US consumer price index, which is expected to show a further slowdown.

“Investors have been putting their chips on the table and betting on inflation’s path ahead of today’s CPI print,” noted Matt Britzman, senior equity analyst at Hargreaves Lansdown.

Traders ramped up bets on the Fed reducing borrowing costs in two months’ time, with analysts saying Powell was telegraphing to markets that the decision had been made.

The comments soothed recent fears among investors that officials might keep rates at their two-decade high for some time owing to a still strong labour market and inflation staying stubbornly above 2%.

The S&P 500 ended with a sixth straight record on Wednesday, while the Nasdaq also finished at an all-time peak.

The upbeat mood filtered through to Asia on Thursday, where Hong Kong stocks jumped 2%, and Tokyo, Shanghai, and Sydney all rose.

London stocks gained and the pound hit a four-month high against the dollar, also as official data showed the UK economy grew last month at a faster pace than expected. Paris and Frankfurt also advanced.

Eyes are also turning to the start of China’s Third Plenum gathering on Monday, where top officials including President Xi Jinping are expected to discuss ways to kickstart the world’s No 2 economy in the face of an ongoing property crisis and geopolitical issues.

However, while there is hope for some sort of major policy announcement, commentators remain cautious.

Andrew Batson, of Beijing-based consultancy Gavekal Dragonomics, told AFP he did not expect a “fundamental departure from the course Xi has already laid out”, in which technological self-sufficiency and national security outweigh economic growth.

Nomura’s Ting Lu added that the meeting was “intended to generate and discuss big, long-term ideas and structural reforms instead of making short-term policy adjustments”.

Economic growth in the first quarter of the year came in above forecasts and is tipped to top the government’s 5% goal for April-June, but the meeting comes amid ongoing concerns that officials are not providing enough support.

Taylor Nugent at National Australia Bank warned: “Further monetary policy easing is constrained by a reluctance to allow further depreciation in the renminbi, and expectations are low for any big policy shift at the Third Plenum.”

Key figures around 1100 GMT

London – FTSE 100: UP 0.2% at 8,213.57 points

Paris – CAC 40: UP 0.3% at 7,598.10

Frankfurt – DAX: UP 0.2% at 18,436.73

EURO STOXX 50: UP 0.3% at 4,974.62

Tokyo – Nikkei 225: UP 0.9% at 42,224.02 (close)

Hong Kong – Hang Seng Index: UP 2.1% at 17,832.33 (close)

Shanghai – Composite: UP 1.1% at 2,970.39 (close)

New York – Dow: UP 1.1% at 39,721.36 (close)

Pound/dollar: UP at US$1.2877 from US$1.2848 on Wednesday

Euro/dollar: UP at US$1.0850 from US$1.0833

Dollar/yen: DOWN at 161.54 yen from 161.71 yen