Asian markets diverged on Wednesday after fresh records were hit on Wall Street and comments from the Federal Reserve Chairman that suggested the central bank may cut interest rates this year, without giving a specific timeline.
Major European stock markets fell on Tuesday due to political unrest in France, while the US S&P 500 and Nasdaq edged up to all-time highs.
The record came after Federal Reserve Chairman Jerome Powell said the central bank was making “moderate” progress in efforts to curb inflation.
The Senate testimony did not specify when the cuts would occur, but analysts expect the first round of cuts to occur in September and the second round by the end of the year.
“Fed Chairman Powell’s testimony last night struck a somewhat dovish tone, noting that the Fed faces ‘risks on both sides,'” Alvin Tan of RBC Capital Markets said in a note.
“He suggested the Fed’s response capabilities were shifting toward easing as the labor market cooled “significantly,” but he still declined to give a clear timeline for rate cuts.”
“In any case, the market has already priced in almost two Fed rate cuts this year, and Powell’s comments did not significantly change those expectations,” Tang added.
Powell is due to testify before a House committee on Wednesday, and investors will also be keeping an eye on U.S. consumer price data released on Thursday for further insight into whether price growth is still easing as expected.
“Thursday’s CPI data could be crucial in determining whether the probability of a September rate cut increases further from the current 70%,” said Stephen Innes at SPI Asset Management.
In Asian markets on Wednesday, Hong Kong stocks rose more than 1% in morning trading, with Alibaba Group Inc. the biggest contributor to the index’s rise, according to Bloomberg.
China’s consumer price index rose 0.2 percent year-on-year in June, official data released on Wednesday showed, missing analysts’ expectations and down from a 0.3 percent increase in May.
Japan, the world’s second-largest economy, emerged from deflation in February, but price growth was slow, in contrast to other major economies where prices have soared.
Zhang Zhiwei of Pinpoint Asset Management said the risk of deflation in China remains amid weak domestic demand, weak fiscal spending and high real interest rates.
“China relied on exports as the main driver of growth in the first half of this year. In the longer term, China will need a recovery in domestic demand to drive its economy,” he said.
He added that if the Fed cuts interest rates in September, China’s central bank could follow suit.
Stock prices rose in Tokyo, as well as in Wellington, Singapore, Jakarta and Kuala Lumpur.
Shanghai and Taipei were little changed, while Sydney, Seoul and Manila fell.
– Key figures around 0250 GMT –
Tokyo – Nikkei Stock Average: up 0.13% to 41,635.53
Hong Kong – Hang Seng Index: up 0.95% to 17,690.50
Shanghai Composite Index: down 0.06% to 2,957.51
EUR/USD: down to $1.0816 from $1.0819 as of 2040 GMT on Tuesday
EUR/GBP: Up from 84.56 pence to 84.58 pence
Pound/dollar: down from $1.2790 to $1.2789
USD/JPY: Increased from 161.29 to 161.52
Brent crude: down 0.1% to $84.59 per barrel
West Texas Intermediate: flat at $81.41 per barrel
New York – Dow Jones Industrial Average: down 0.1% to 39,291.97 (closing price)
London – FTSE 100: down 0.7% to 8,139.81 (close)
Barsco/Fox
