Source: AFP
Asian shares rose on Wednesday to fresh Wall Street records after Federal Reserve chief Jerome Powell bolstered hopes for a rate cut, saying the fight against inflation had made “progress” and the labor market was cooling.
After a series of above-forecast data and warnings from central bank officials that monetary policy would remain elevated for some time, the remarks gave renewed optimism that a tapering — and possibly two — were on the way before the end of the year.
However, that was not enough to help the euro against the dollar as traders worry about weekend polls in France that could see the far right take power, which some warn could bring the second biggest economy of the European Union on a collision course with the bloc. .
Speaking at a forum in Portugal on central banks, Powell said the Fed “has made considerable progress in reducing inflation to our (two percent) target, while the labor market has remained strong and growth has continued.”
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“We want this process to continue.”
He also pointed to “substantial” work to ease the labor market, a key goal among policymakers. The key nonfarm payrolls report will be closely watched on Friday, with investors hoping for a slowdown in hiring that could give the Fed room to cut.
Powell said the two percent target could potentially be reached “maybe late next year” or in 2026. The consumer price index reached 3.3 percent in May, having peaked at a four-decade high above nine percent in 2022;
Investors believe there is about a 70 percent chance of a rate cut by mid-September, with a second rate cut more likely by the end of the year, according to CME Group data.
The prospect of borrowing costs finally falling from 23-year highs in a few months helped push Wall Street higher, with the S&P closing above 5,500 for the first time and the Nasdaq closing at a record.
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And Asia continued to rally, with Tokyo, Hong Kong, Sydney, Seoul, Singapore, Taipei, Manila and Jakarta all in the green, although Shanghai fell.
In currency markets the euro was unable to capitalize on recent gains against the dollar earlier in the week after Sunday’s first round vote showed the French far-right may not win enough seats to win an outright majority.
There are fears that a victory for Marine Le Pen’s Rallye Nationale (RN) in the second round this weekend will lead to the introduction of a budget that could cause a rift with Brussels, sparking fresh uncertainty in the European Union.
But as President Emmanuel Macron’s centrist and left-wing parties begin horse-trading to block the RN, analysts have warned investors to be cautious.
“If Macron’s centrist coalition decides to support the far-left coalition … it may allow them an easier maneuvering ticket in the French parliament to support more aggressive fiscal spending policies and tax cuts compared to the far-right.” Kelvin Wong told OANDA.
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This, he added, “is likely to widen France’s excessive budget deficit of 5.5% last year, which exceeded the EU’s reference budget deficit ceiling of 3%.”
Keys around 02:30 GMT
Tokyo – Nikkei 225: UP 0.9 percent at 40,425.37 (break)
Hong Kong – Hang Seng Index: UP 0.9 percent at 17,920.11
Shanghai Composite: DOWN 0.4 percent at 2,985.31
EUR/USD: DOWN at $1.0743 from $1.0749 on Tuesday
Euro/pound: DOWN to 84.69 pence from 84.71 pence
GBP/USD: DOWN to $1.2684 from $1.2686
Dollar/yen: UP 161.61 yen to 161.46 yen
West Texas Intermediate: UP 0.4 percent to $83.11 a barrel
North Sea Brent crude: UP 0.4 percent at $86.58 a barrel
New York – Dow: UP 0.4 percent at 39,331.85 (close)
London – FTSE 100: Down 0.6% to 8,121.20 (close)
Source: AFP