July 19: Asian markets rallied Friday as comments from a top Federal Reserve official were pounced on by investors as indicating the central bank will unveil a deep interest rate cut at the end of the month.
John Williams, the influential vice chairman of the Fed's policy-setting board, said in a speech that central banks should move quickly to support the economy when borrowing costs were already low.
He pointed to studies suggesting that when there are few stimulus options available, officials should “move more quickly than you otherwise might” rather than waiting “for disaster to unfold”.
While a spokesman later clarified that Williams was not outlining Fed policy and was not flagging a half-point cut, analysts said the remarks provided an insight into how officials were thinking.
Markets have been wavering this week over how big the bank's expected reduction would be, with 25 basis points priced in but traders hoping for 50 basis points.
“Williams' remarks put probabilities of multiple rate cuts higher after strong economic indicators had put doubts on the number of rate reductions this year and how deep the cut will be,” said OANDA senior market analyst Alfonso Esparza.
Wall Street ended in positive territory and Asia was on course to end the week on a strong note, despite concerns about the global outlook and a lack of progress in China-US trade talks.
Tokyo went into the break 1.7 percent higher, while Hong Kong and Shanghai were both up one percent in early business.
Seoul and Taipei also added one percent, while Sydney climbed 0.8 percent, Singapore put on 0.4 percent, Wellington added 0.3 percent and Manila advanced 0.6 percent.
– Warning for stocks –
However, Jeffrey Kleintop, chief global investment strategist at Charles Schwab & Co, warned that weakness in the world economy would eventually drag on markets.
“I don't think a few rates cuts is going to make the difference, whether it's 25 or 50 basis points at the end of this month,” he told Bloomberg TV. “While the bond market is pricing in a realistic probability of the slowdown, stocks have gone the other direction this year and may be in for a surprise.”
Bets on lower rates were also providing support to higher-yielding, riskier currencies with the Australian dollar and South Korean won climbing 0.6 percent and the Indonesian rupiah 0.5 percent higher. South Africa's rand, the Turkish lira and Mexican peso were also well up.
However, the greenback did claw back slightly against its major peers following steep losses on Thursday.
The softer dollar was also helping oil prices rally, while Donald Trump's claims that the US had shot down an Iranian drone that threatened an American naval vessel also provided strong support.
However, Vanguard Markets' Stephen Innes said the commodity remained under pressure from concerns about demand, despite moves to loosen monetary policy.
“It's not central bank liquidity that oil markets need but global economic growth,” he said. “All the money in the world isn't going to alleviate the fact markets are mired in a trade war-induced global economic slump that is factoring in both consumer and industrial consumption metrics.”
– Key figures around 0230 GMT –
- Tokyo – Nikkei 225: UP 1.7 percent at 21,394.23 (break)
- Hong Kong – Hang Seng: UP 1.0 percent at 28745.53
- Shanghai – Composite: UP 1.0 percent at 2,929.57
- Pound/dollar: DOWN at $1.2545 from $1.2548 at 2050 GMT
- Pound/euro: DOWN at 89.77 pence from 89.87 pence
- Euro/dollar: DOWN at $1.1262 from $1.1277
- Dollar/yen: UP at 107.55 yen from 107.30 yen
- West Texas Intermediate: UP 92 cents at $56.22 per barrel
- Brent North Sea crude: UP $1.20 at $63.13 per barrel
- New York – Dow: FLAT at 27,222.97 (close)
- London – FTSE 100: DOWN 0.6 percent at 7,493.09 (close)