LONDON,– Global shares climbed on Wednesday following comments from Federal Reserve Chair Jerome Powell that reinforced expectations of imminent U.S. interest rate cuts. This briefly halted recent increases in Treasury yields and the dollar.
MSCI’s world share index rose 0.3% to a new record high, with Europe’s broad STOXX 600 index up 0.9% in early trading. Earlier, Asian shares surged, with Japan’s Nikkei closing 1.26% higher, nearing its record high from March, after Wall Street’s main indexes finished higher on Tuesday.
Powell’s remarks on Tuesday indicated that the U.S. is on a “disinflationary path,” though he noted that more data is needed before considering interest rate cuts. His comments led to a drop in U.S. Treasury yields, with the yield on the 10-year note steady at 4.43% on Wednesday, down from Monday’s one-month high of 4.493%.
“There was a bit of change of tone from Powell,” said Michael Metcalfe, head of macro strategy at State Street Global Markets. “Most recent inflation prints have been encouraging. The idea that inflation is not as sticky as anticipated and you could get some policy support is encouraging.”
Traders are now pricing in a 69% chance of the Fed cutting rates in September and anticipate up to two rate cuts this year. This outlook is a shift from earlier in the year when more than 150 basis points of easing were expected, and a few months ago when no cuts were seen as plausible.
U.S. Labor Market and Upcoming Data
Investors are also considering data showing a tight U.S. labor market, with attention turning to Friday’s nonfarm payrolls data. U.S. markets are shut on Thursday and close early on Wednesday.
In Europe, the calendar is lighter on Wednesday, with focus on Britain’s national election on Thursday and the second round of France’s parliamentary elections on Sunday. Markets have shown little concern over Britain’s election, with polls suggesting a win for the opposition Labour party, though French politics have recently caused sharp market swings.
China’s Economic Data and Market Reactions
Data from China indicated that the country’s services activity grew at the slowest pace in eight months, with confidence hitting a four-year low in June due to slower new order growth. Onshore Chinese blue chips (.CSI300) fell 0.24%, and China’s yuan eased to a seven-month low against the dollar.
Currency and Commodity Markets
The pause in Treasury yields’ climb halted gains in the dollar temporarily. The euro rose 0.08% to $1.0754, and the pound increased 0.1% to $1.2696. The yen was slightly calmer, though the dollar reached a new 38-year high of 161.90 yen. The yen has dropped more than 12% against the dollar this year due to the interest rate gap between the U.S. and Japan.
Traders are watching for potential intervention by Japanese authorities in the currency market to support the yen, though analysts suggest this might not happen at current levels. “I can’t see the yen turning around until Fed easing is in view,” said Kit Juckes, FX strategist at Societe Generale.
In commodities, oil prices rose as U.S. industry data boosted hopes for strong fuel demand during the summer driving season. Brent crude oil futures increased by 6 cents to $86.30 a barrel, while U.S. West Texas Intermediate crude futures ticked up 2 cents to $82.83 per barrel. Spot gold was up 0.7% at $2,345 an ounce.
Source: Reuters
