Asian markets extend gains as Fed hopes linger

HONG KONG (AFP) - Asian equities rose yesterday, building on optimism fuelled by expectations of a Federal Reserve interest rate cut, with debate now focusing on how far the central bank will go.

The gains came despite unease caused by Donald Trump accusing China of backsliding on a trade promise just days after the two sides tentatively began phone talks on resolving their tariffs war.

After big losses at the start of the week, trading floors have been much more positive since Federal Reserve boss Jerome Powell’s congressional testimony Wednesday in which he all but flicked the switch on a rate cut at the end of the month.

A second day of testimony Thursday essentially reiterated his point.

His comments, which highlighted economic headwinds from the trade war and slowing global growth, sparked a rally on world markets. 

“We have a sitting (policy board) that is prepared to over-deliver on markets’ expectations as Powell’s monetary policy testimony unambiguously reinforces his inclination to cut rates aggressively,” said Vanguard Markets’ Stephen Innes.

He added that even a forecast-beating inflation report on Thursday was unable to deter traders from betting on a reduction.

“Not surprisingly there is 100 percent consensus the Fed is going to cut in July. But we are still no closer to settling the 25 or 50 (basis points) July rate cut debate.”

Hong Kong added 0.1 percent and Shanghai ended 0.4 percent higher with Tokyo 0.2 percent up.

Seoul gained 0.3 percent, Wellington added 0.1 percent, and Manila rose 0.4 percent. Singapore added 0.1 percent despite data showing the city-state’s economy taking a serious hit from global trade uncertainty.

But Sydney, Taipei and Jakarta were all lower.

In early trade London and Paris each rose 0.2 percent but Frankfurt eased 0.1 percent. 

The broad gains follow another record lead from Wall Street, where the Dow ended above 27,000 for the first time.

As investors head into the weekend Trump provided a seed of uncertainty with his tweet hitting out at China, just two weeks after meeting its President Xi Jinping and telling the world that trade talks were “back on track”.

He accused China of not fulfilling a pledge to buy more agricultural goods, saying it was “letting us down in that they have not been buying the agricultural products from our great Farmers that they said they would”. “Hopefully they will start soon!”

While the remark did not spark a sell-off on equity markets, observers pointed out that it highlighted how much work needed to be done before the economic superpowers reach an agreement.

There are also lingering concerns about Trump’s decision to order a probe into France’s planned tax on internet services as Paris targets US titans Google, Apple, Facebook and Amazon.
On currency markets the yen, euro and pound added to gains against the dollar though the greenback clawed back some of its past days’ losses against higher-yielding, riskier assets such as the South Korean won and Indonesian rupiah.