Asia equities rise, dollar drops on rate prospects

by Jonathan Adams
equities rally

The gains tracked another record on Wall Street, while national elections in Britain and France are also on the radar over the next few days

Asian equities rose and the dollar slid further on Thursday as investors welcomed more data pointing to a weakening labour market that gives the Fed room to lower interest rates, with another key jobs report due later in the day.

The gains tracked another record on Wall Street on a holiday-shortened day, while national elections in Britain and France are also on the radar over the next few days.

After a recent poor run for stocks, the mood on trading floors has lightened this week following figures suggesting the US labour market was tightening and inflation easing.

On Wednesday, figures showed the private sector created fewer jobs than expected last month, while first-time and continuing claims for jobless benefits also topped forecasts.

Also, a survey showed services sector activity declined in June at the fastest pace in four years.

That all came after news Friday that the PCE index – the Fed’s preferred gauge of prices – had dropped further in May.

Adding to the feel-good factor were comments this week from Fed chief Jerome Powell, who said the battle against inflation had made “progress” and “substantial” work had been done on softening the labour market.

Markets are pricing in around two rate cuts this year, starting in November.

Still, minutes from the central bank’s June policy meeting showed officials remained cautious about cutting too soon and wanted to see more evidence prices were under control.

While inflation remains sticky and is tempering expectations, weakening data in May “adds to our growing confidence that price rises won’t reaccelerate from here”, according to Henk-Jan Rikkerink, of Fidelity International.

The range of outcomes when it comes to the magnitude of potential rate reductions by the Federal Reserve, have narrowed considerably since the beginning of the year, he said.

We think that the bar for the cutting cycle to start remains high but recent progress on the inflation front has been encouraging, he added.

And the gains filtered through to most of Asia, with Tokyo, Hong Kong, Sydney, Seoul, Taipei, Manila and Jakarta rising.

Shanghai, however, bucked the trend again, with traders still on edge about the state of the world’s second largest economy.

Disclaimer: The opinions expressed by our writers are their own and do not represent the views of Trading and Investment News. The information provided on Trading and Investment News is intended for informational purposes only. Trading and Investment News is not liable for any financial losses incurred. Conduct your own research by contacting financial experts before making any investment decisions.

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