Asian Stock Gains Muted; Dollar Slips on Powell: Markets Wrap

Andrew Cummings
July 11, 2019

LONDON, July 10 (Reuters) - Shares were treading water on Wednesday while rising Treasury yields kept the dollar steady, as investors waited to hear whether the world's most powerful central banker would confirm or confound expectations for a US rate cut this month.

MSCI's broadest index of Asia-Pacific shares outside Japan advanced 0.4 per cent, after three sessions of losses.

London's FTSE bobbed in and out of the green, Paris rose after better-than-expected French industrial data. "If we see softer-than-expected inflation data tomorrow and if the advance second-quarter GDP (gross domestic product) reading comes in well below 2.0% on July 26th, we will see the case grow for the first cut to be a 50-basis-point one", said Edward Moya, senior market analyst at OANDA in NY. In Japan, however, the Nikkei 225 settled 31.67 points, or 0.2%, to 21,533.48.

The US dollar fell against major currencies, including the euro and the yen, in early trading today after Federal Reserve Chairman Jerome Powell said trade uncertainties and concerns about the global outlook continued to exert pressure on the US economy. Stock and bond investors are struggling to find fresh reasons to chase this year's rallies, but an interest rate cut by the Fed this month is already priced and recent economic data has been mixed, making the path for future policy less clear.

Expectations for a 50-basis-point rate cut at a Fed meeting later this month have evaporated, but investors still expect a 25-basis-point cut due to weak inflation and worries about growing business fallout from the U.S.

A key measure of US inflation - the core consumer price index, due Thursday - is expected to have increased 0.2% in June from the prior month, while the broader CPI is forecast to remain unchanged.

Overnight, Atlanta Fed bank president Raphael Bostic let nothing out of the bag by saying the central bank was debating the risks and benefits of letting the U.S. economy run "a little hotter".

Wall Street had been dully circumspect, with the Dow ending yesterday down 0.08 per cent, while the S&P 500 added 0.12 per cent and the Nasdaq 0.54 per cent.

The cooling in U.S. rate fever has seen bonds give back just a little of their rally.

The greenback index versus a basket of six main currencies was little modified at 97.374.

The Mexican peso was nursing a few bruises after sliding on Tuesday when the country's moderate Finance Minister Carlos Urzua suddenly resigned, citing "extremism" in economic policy. Yields on two-year Treasuries rose to 1.917 per cent from their recent low of 1.696 per cent and Europe's benchmark yields up around five basis points.

The dollar's gains took the shine off gold, which eased 0.3 per cent to $1,393.48 per ounce.

Elsewhere Wednesday, oil prices jumped more than two percent after a closely watched industry report showed a massive drop in United States stockpiles last week, while traders also cheered reports that Russian output fell in July to its lowest in almost three years. U.S. crude was up 82 cents to $US58.65 a barrel.

West Texas Intermediate crude gained 0.6% to $58.02 a barrel.

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