June 5: Stock markets rose Wednesday, led by a Wall Street rally after Federal Reserve chief Jerome Powell indicated greater openness to lowering US interest rates, helping to ease trade war growth worries.
Speaking in Chicago on Tuesday, Powell said ongoing trade conflicts had dimmed the growth outlook and the Fed would be watchful as a result to ensure the economy remained on track.
His remarks were widely seen as opening the door to a potential interest rate cut.
So far this year the Fed has kept interest rates unchanged, after a series of hikes in 2018 and previous years.
The Dow surged 2.1 percent on Tuesday after Powell's comments.
Wall Street extended the gains after the opening bell on Wednesday, despite new US payrolls data showing that hiring crashed last month, hitting its lowest level in nearly a decade.
Briefing.com analyst Patrick O'Hare said that while the hiring data will “foment the concerns about the US economy slowing” it would also “feed the market's belief that the Fed is going to be forced to cut the fed funds rate sooner rather than later”.
Fawad Razaqzada at Forex.com said that Tuesday's rally “serves as a reminder that the markets are literally addicted to cheap central bank money and hints of a rate cut in the US… was enough to send the Dow (up) 500+ points.”
“Investors are hoping, or betting even, that the European Central Bank's Mario Draghi will deliver a dovish press conference on Thursday, pushing rate hike expectations further out,” Razaqzada said.
Europe's main stock markets largely ticked upwards on Wednesday, with London's benchmark FTSE 100 up 0.2 percent and the Paris CAC 40 rising 0.3 percent while Frankfurt's DAX 30 index was flat.
However the Milan stock market dipped by half a percent after the EU formally put Italy on notice for its deteriorating deficit and huge debt.
Earlier on Wednesday, Tokyo's main stocks index closed 1.8 percent higher, while Hong Kong won 0.5 percent, Seoul edged up 0.1 percent and Taipei climbed 0.3 percent.
The euro and pound were both trading higher against the dollar, with Oanda analyst Craig Erlam crediting an “underperforming greenback and improved risk appetite”.
– Trade war fears ease –
Buying was supported also by more favourable news on the trade front, with Beijing backing negotiations to resolve its stand-off with Washington and congressional Republicans opposing President Donald Trump's tariff threats against Mexico.
Worries over the US-China trade war “have eased following reports that China's commerce ministry said the trade friction should be resolved through dialogue”, Okasan Online Securities' chief strategist Yoshihiro Ito said in a commentary.
But a World Bank report showing reduced global growth forecasts for the year suggested that investors could expect the trade headwinds to continue for some time yet.
The world economy is now expected to expand by 2.6 percent this year, three tenths of a percentage point lower than the January forecast, and well below the three percent growth of 2018, according to the Global Economic Prospects report.
The International Monetary Fund has meanwhile lowered China's economic growth forecast for 2019 and 2020, citing “uncertainty” over the trade war between Beijing and Washington.
The US-China trade spat has seen the top two superpowers deploy tit-for-tat tariffs on trade worth hundreds of billions of dollars, with no date set for stalled talks to resume.
But there are hopes that Trump and Chinese President Xi Jinping will meet at the G20 summit in Japan this month to jump-start negotiations.