Asian markets boosted by Fed chief’s rate cut talk

Most Asian equities rose with the yen on
Monday after US Federal Reserve boss Jerome Powell said “the time has come”
to start cutting interest rates, lining up the central bank for a move as
soon as next month.

The comments provided investors with an extra boost and helped put the market
turmoil earlier in August behind them, though analysts warned to be on guard
for any unexpected data that could burst the optimistic bubble.

Traders were also keeping an eye on developments in the Middle East after a
flare-up in hostilities between Israel and Hezbollah that fanned fears of an
escalation in the region.

In a much-anticipated speech to a symposium of central bankers at Jackson
Hole, Wyoming, Powell said: “The time has come for policy to adjust.

“The direction of travel is clear, and the timing and pace of rate cuts will
depend on incoming data, the evolving outlook and the balance of risks,” he
added.

“My confidence has grown that inflation is on a sustainable path back to two
percent,” he said, referring to the central bank’s target.

Equities had already been on the rise on expectations the Fed would start
cutting from two-decade highs next month, with debate now mostly centred on
how big the reduction would be and how many more would follow.

Traders are betting on around one percentage point of reductions before the
end of the year.

“Importantly there was a notable absence of caveats such as
‘gradual/gradualism’ as used by other Fed officials,” said National Australia
Bank’s Tapas Strickland.

“The absence of caveats is likely what excited markets.”

The remarks helped push all three main indexes more than one percent higher
in New York.

Most of Asia followed suit on Monday, with Hong Kong, Sydney, Singapore,
Taipei and Wellington all in the green.

However, there were losses in Tokyo, Shanghai and Seoul.

“Yep, the Fed is ready to start slicing those interest rates. With the labour
market cooling off and inflation finally inching closer to that elusive two
percent target, Powell served up exactly what Wall Street had been drooling
over,” said independent analyst Stephen Innes.

“Right now, investors are in dreamland — having their cake, eating it too.
The dream scenario? A series of rate cuts that somehow dodge the recession
bullet.”

However, he warned that “the market’s next big move hinges on whether the
latest US data points to a gentle slowdown or the first tremors of a full-
blown recession. The stakes? They couldn’t be higher”.

Attention will now turn to the release of a string of economic figures,
including US jobs, inflation and personal income.

Tokyo stocks were weighed by a strengthening yen, which rallied Friday on
Powell’s comments and an indication from Bank of Japan chief Kazuo Ueda that
it could hike rates again if inflation and the economy performed as expected.

The yen was sitting at less than 144 per dollar in early trade.

Traders were keeping a nervous eye on the Middle East after Israel launched
air strikes into Lebanon on Sunday, saying it had destroyed “thousands” of
Hezbollah rocket launchers and thwarted a major attack.

The Lebanese group said it had unleashed a drone and rocket barrage of its
own.

The news sent the price of oil higher, though the gains were tempered by
hopes that the crisis will not develop into a full-blown war taking in other
regional powers including Iran.

For its part, Hezbollah said its operation “was completed and accomplished”.

Both main contracts rose Monday, extending Friday’s more than two percent
rally that came on the back of Powell’s interest rate comments.

– Key figures around 0230 GMT –

Tokyo – Nikkei 225: DOWN 1.1 percent at 37,944.68 (break)

Hong Kong – Hang Seng Index: UP 0.9 percent at 17,775.80

Shanghai – Composite: DOWN 0.1 percent at 2,850.49

Dollar/yen: DOWN at 143.62 yen from 144.34 yen on Friday

Euro/dollar: UP at $1.1199 from $1.1193

Pound/dollar: UP at $1.3219 from $1.3209

Euro/pound: UP at 84.72 pence from 84.70 pence

West Texas Intermediate: UP 0.8 percent at $75.39 per barrel

Brent North Sea Crude: UP 0.6 percent at $78.65 per barrel

New York – Dow: UP 1.1 percent at 41,175.08 (close)

London – FTSE 100: UP 0.5 percent at 8,327.78 (close) (BSS/AFP)