Asia stocks gain, dollar sags as Fed reinforces rate cut expectations

Andrew Cummings
July 20, 2019

MSCI's emerging market currency index has risen 0.35% so far this week to a four-month high of 1,657.07, coming within sight of this year's double peak around 1,658, hit in late January and March.

"Fed rate cut expectations have only resulted in modest USA dollar weakness so far which has been more evident recently against higher yielding currencies given the renewed search for yield", MUFG analysts wrote.

Financial markets quickly reacted, with Fed fund rate futures at one point pricing in nearly 70 per cent chance of a 50 bp cut at the month-end meeting.

Geopolitical concerns overshadowed Friday's market close after Iran seized two tankers - one under the UK's flag and one operated by a UK company.President Donald Trump told reporters that the United States has "a very close alliance with the UK", adding that the United States has "a lot of [Navy] ships" in the region.


A gauge of global stocks climbed on Friday as investors expect an aggressively dovish U.S. Federal Reserve at its next meeting and as early returns on earnings season have been better than anticipated.

Comments by New York Fed President John Williams on Thursday made it virtually certain, in the markets' view, that the Fed would cut interest rates by at least 25 basis points at its July 30-31 policy meeting and also revived expectations of an even deeper 50 bps reduction.

After rate cuts by South Africa and Ukraine this week, Russian Federation and Turkey are expected to join the easing in the central and eastern European sphere, they added. Britain's FTSE 100 index gained 0.6 per cent and Germany's DAX rose 0.75 per cent.

Asian stock indices rebounded today after a recovery on Wall Street overnight. But a New York Fed spokesman later said the talk was theoretical.


Elsewhere in Asia, the Shanghai Composite Index rose 0.8%, Australian stocks added 0.75% and South Korea's KOSPI gained 1.4%. It was, however, still on track to break a six-week streak of weekly gains. These comments, combined with similarly dovish rhetoric from fellow Fed member Clarida earlier in the day, sent the greenback around half a percent lower against the Euro on Thursday evening.

West Texas Intermediate crude advanced 1% to $55.85 a barrel.Gold slid 0.3% to $1,442.27 an ounce.

Spot gold extended the previous day's rally made on the prospects of lower U.S. interest rates and brushed a six-year high of Dollars 1,452.60 an ounce, before pulling back a touch to USD 1,442.25. The dollar did not budge after U.S. Treasury Secretary Steven Mnuchin told Bloomberg earlier on Thursday there has been "no change to the dollar policy".

The alleged incident yesterday comes amid soaring tensions between the two foes after Iran shot down a USA drone last month.


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