Asian shares jump on US Fed's rate cut bandwagon

Saturday, 08 Jun, 2019

The S&P 500 Index of U.S. stocks jumped 2.1% Tuesday, the most since January, while the yield on 10-year U.S. Treasuries rose from Monday's 20-month low.

Worries over the US-China trade dispute "have eased following reports that China's commerce ministry said the trade friction should be resolved through dialogue", Okasan Online Securities' chief strategist Yoshihiro Ito said in a commentary. This morning, the European Central Bank (ECB) will issue its monetary policy statement and provide updated economic projections.Markets are expecting a dovish result due to weak Eurozone data, soft inflation and on-going Italian budget concerns. But he said the anti-poverty agency foresees a potentially deeper slowdown if trade hostilities persist. It "reflects the rush of negative sentiment over the weekend which, if it isn't arrested by positive developments on the trade front, has the potential to take the market much lower".

Meanwhile, the Japanese yen was down 0.13% against the United States dollar at JPY108.29. South Korea's Kospi added 0.2% to 2,071.06.

Interest rate futures show the USA central bank will start cutting rates as soon as next month, with as many as three rate cuts priced by year-end.

Fed Chairman Jerome Powell said the USA central bank was keeping tabs on recent developments in Washington's trade spat with China, indicating that it would take measures to sustain the U.S. economic expansion, leading investors to jump to the conclusion that a rate cut may be likely.

New orders for manufactured goods in April, down two of the last three months, decreased 4.0 billion US dollars or 0.8 percent to 499.3 billion dollars, according to the Commerce Department on Tuesday.

Mexican Foreign Minister Marcelo Ebrard said Mexico can likely reach a deal with the USA at a meeting Wednesday.

President Donald Trump had said he would likely go ahead with new tariffs on Mexican imports next week, despite some opposition from his own party. Republican senators expressed opposition to the proposed tariffs.

Analysts at Morgan Stanley believe the USA economy could be barrelling toward recession unless the trade disputes are resolved.

The comments signal a shift in the policy of the Fed, which has kept interest rates unchanged in 2019 after a series of hikes in 2018 and previous years.

"Now due to concerns about the global economy, people are viewing that as maybe the next move could be a cut in USA rates and that is undermining the dollar".

USA crude retreated 0.6% to $53.16 a barrel.

The euro was up 0.05 per cent at US$1.1257, extending its gains to a fourth session.

August Brent rose 69 cents, or 1.1%, to finish at $61.97 a barrel on ICE Futures Europe. It has fallen 1.3 per cent from a more than two-year high of 98.371 touched on May 23.

CURRENCIES: The dollar slipped to 108.11 Japanese yen from 108.15 yen on Tuesday. Euro Area growth is projected to hover around 1.4% in 2020-21, with softness in trade and domestic demand weighing on activity despite continued support from monetary policy.