World stocks rise on rate cut bets, yen flounders at 38-year lows

SINGAPORE/LONDON (July 3): Shares around the world rose on Wednesday as comments from Federal Reserve chair Jerome Powell reinforced expectations that US rate cuts were not far off, and also made a brief halt to recent rises in Treasury yields and the dollar.

MSCI’s world share index gained 0.2% to a new record high, with Europe’s broad STOXX 600 index 0.4% higher in early trading

Earlier in the day, Asian shares rose, with Japan’s Nikkei up 1.4%, chasing its record high touched in March, after Wall Street’s main indexes closed higher on Tuesday.

Shaping the broader economic and market picture were Powell’s Tuesday remarks that the US is back on a “disinflationary path”, although he cautioned that policymakers need more data before they can consider cutting interest rates.

Powell’s comments sent US Treasury yields lower, with the yield on the 10-year note steady at 4.44% on Wednesday, moving further from Monday’s one month high of 4.493%.

“There was a bit of change of tone from Powell,” said Michael Metcalfe, State Street Global Markets’ head of macro strategy.

“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 currently pricing in a 69% chance of the Fed cutting rates in September and as many as two rate cuts this year.

That is a far cry from the more than 150 basis points of easing expected at the start of the year, but a step up from a few months ago when investors saw no Fed cuts at all this year as plausible, if not their base case.

Investors were also weighing data showing a tight US labour market and will switch their focus to Friday’s non-farm payrolls data, with US markets shut on Thursday and closing early on Wednesday.

There is less on the calendar in Europe on Wednesday, but the focus is on Britain’s national election on Thursday, and the second round of voting in France’s parliamentary elections Sunday.

Markets have been largely unconcerned by Britain’s election — polls point to a win by the opposition Labour party — though French politics has caused sharp swings in recent weeks.

There was data from China, however, showing the country’s services activity expanded at the slowest pace in eight months and confidence hit a four-year low in June, dragged by slower growth in new orders.

Onshore Chinese blue chips were an outlier among rising indexes in Europe and Asia, slipping 0.24%, and China’s yuan eased to a seven-month low against the dollar.

Yen vigil

The pause in Treasury yields’ climb halted gains in the dollar, at least in the short term. The euro was last up 0.16% at US$1.0763, and the pound up 0.1% at US$1.2699.

Even the yen was slightly calmer, though the dollar still climbed to a new 38-year high of ¥161.94. The yen has dropped more than 12% against the dollar this year, hurt by the wide gap between interest rates in the US and Japan.

Traders have been on the lookout for signs of Japanese authorities intervening in the currency market to prop up the frail yen, with some analysts suggesting that the line in the sand might be further away than current levels.

“We suspect interest on the pair has subsided as intervention threat looms around the 164-165 level,” said Alex Loo, macro strategist at TD Securities in Singapore.

In commodities, oil prices rose as US industry data boosted hopes of solid fuel demand during the summer driving season in the top oil consuming nation.

Brent crude oil futures up 0.3% at US$86.52 a barrel, while US West Texas Intermediate crude futures 0.22% higher at US$82.99 per barrel.

Spot gold was up 0.6% at US$2,343.7 an ounce.

Uploaded by Magessan Varatharaja

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