Source: AFP
Asian traders extended a rally in global markets on Thursday as they welcomed data showing that U.S. inflation slowed further last month, easing concerns over the Federal Reserve’s forecast of just one rate cut this year.
The weaker-than-expected consumer price index in May marked the second consecutive month of slowing — to a more than three-year low — and boosted optimism that the central bank will be able to ease monetary policy after a long campaign of tightening.
The data also soothed investors spooked by last Friday’s bumper nonfarm payrolls data that showed the labor market remained tight and the economy in rude health, making it harder to cut borrowing costs.
However, the Fed later in the day released its long-awaited “dot plot” outlook for interest rates, which showed policymakers saw just one cut this year — down from three it predicted in its previous guidance in March.
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They penciled in a median of four cuts next year and four in 2026.
Bank boss Jerome Powell welcomed the inflation data but added that officials needed to see more “good inflation readings” before they were confident enough to consider tapering.
The dot saw the S&P 500 and Nasdaq break off their intraday highs, though they managed to set a third consecutive record high, with analysts saying the positive trend in inflation data could allow bank to reduce more.
“Patience is a virtue and the Fed still seems to hold as it described confidence in an economy and inflation that are on track,” said Kerry Craig at JP Morgan Asset Management.
“The Fed could still move twice this year if inflation numbers continue to decline and … Powell did not sound hawkish at the press conference. Markets should take away the impression of a central bank still pursuing policy easing course, even if it comes later.”
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And Lon Erickson, at Thornburg Investment Management, added: “Powell specifically commented that the labor market could weaken very quickly, and the Fed doesn’t expect that.
“I suspect that this means the Fed is at or near the point where inflation is evolving that it would be willing to move quickly and decisively with rate cuts to stop significant job losses.
“High inflation is painful for American families, he said, but no income is much, much worse.”
Asian markets welcomed the news from Washington, with Hong Kong, Sydney, Seoul, Singapore, Wellington, Taipei, Manila and Jakarta all higher, although Tokyo and Shanghai fell.
Slowing US inflation and the prospect of a Fed rate cut weighed on the dollar on Wednesday and it struggled to recover in Asian business.
Observers said the euro was also supported by French President Emmanuel Macron’s pledge not to resign if his party loses snap elections he called at the weekend after the far-right’s shock defeat in EU-wide polls.
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Macron said he wanted to form an alliance against political extremes in the vote, adding that his aim was to prevent the far right from succeeding him in 2027 when he steps down.
Investors are also watching the yen as the Bank of Japan kicked off a two-day policy meeting, with speculation mounting that it is preparing the ground for further tightening after raising interest rates in March for the first time in 17 years.
Keys around 02:30 GMT
Tokyo – Nikkei 225: Down 0.1 percent at 38,831.36 (break)
Hong Kong – Hang Seng Index: UP 0.7 percent at 18,054.53
Shanghai Composite: DOWN 0.2 percent at 3,031.45
EUR/USD: DOWN at $1.0807 from $1.0811 on Wednesday
Euro/pound: UP to 84.50 pence from 84.45 pence
GBP/USD: DOWN to $1.2788 from $1.2797
Dollar/yen: UP to 156.93 yen from 156.86 yen
West Texas Intermediate: DOWN 0.4% to $78.17 a barrel
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North Sea Brent crude: DOWN 0.4 percent at $82.28 a barrel
New York – Dow Jones: DOWN 0.1 percent at 38,712.21 (close)
London – FTSE 100: UP 0.8 per cent at 8,215.48 (close)
Source: AFP