A pedestrian walks past an electronic board displaying Asian stock market indices in Tokyo, Japan. Picture: BLOOMBERG/TOMOHIRO OHSUMI
A pedestrian walks past an electronic board displaying Asian stock market indices in Tokyo, Japan. Picture: BLOOMBERG/TOMOHIRO OHSUMI

Tokyo — Asian stocks gained and the dollar drooped on Thursday after Federal Reserve chair Jerome Powell reinforced prospects of a US interest rate cut at the end of July.

In an appearance before his congressional overseers on Wednesday, Powell confirmed that the US economy is still under threat from disappointing factory activity, tame inflation and a simmering trade war.

Powell said the central bank stands ready to “act as appropriate”.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.8%, while Japan’s Nikkei added 0.4%.

The Shanghai Composite Index advanced 0.8%, South Korea’s Kospi climbed 1% and Australian stocks edged up 0.3%.

US stocks ended higher on Wednesday and the S&P 500 briefly crossed the 3,000-point mark for the first time following Powell’s remarks.

“The markets had hoped for Powell to express dovish views and they got what they wanted,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui DS Asset Management.

“The focus going forward is US data, such as tonight’s CPI [consumer price index], and whether the economy warrants a 50-basis-point rate cut this month.”

A strong June US jobs report released earlier in July had curbed market expectations that the Fed could lower rates by 50 basis points, and the markets had viewed a 25-basis-point cut as a more likely option.

But the Fed chair’s cautious stance on the world’s largest economy helped revive some bets on heftier easing at its next policy meeting on July 30-31.

The chance of a 50-basis-point cut rose to 27.6% from 3.3% on Tuesday, according to CME Group’s FedWatch tool.

Minutes from the Fed’s last meeting in mid-June, however, showed some policymakers felt there was not yet a strong case for easing.

The dollar index against a basket of six major currencies stood little changed at 97.001 after falling 0.4% overnight, when it pulled back from a three-week peak of 97.588 in the wake of Powell’s comments.

The greenback was down 0.35% at ¥108.080, forced off a six-week high of 108.990 scaled the previous day.

The euro nudged up 0.1% to $1.1263 after gaining 0.4% on Wednesday.

The Australian dollar was steady at $0.6962 following an overnight rise of 0.5% against the broadly weaker dollar. The surge helped the Australian currency pull away from a two-and-a-half-week trough of $0.6910.

The 10-year US Treasury yield was at 2.038% after dropping on Wednesday from a three-week high of 2.113% following the Fed chair’s congressional testimony.

In commodities, US crude oil futures extended the previous day’s large gains to touch $60.67 a barrel, their highest since May 23.

The contract had surged 4.5% on Wednesday after US crude inventories shrank and as major producers cut nearly a third of offshore Gulf of Mexico production ahead of an expected storm.

Brent crude brushed a six-week high of $67.15 a barrel and last traded at $66.91.

Spot gold rose to $1,426/oz, its highest since July 3 as reinforced expectations for a Fed rate cut boosted the non-yielding precious metal. 

Reuters