Asian markets largely rose yesterday, tracking rallies on Wall Street after the US central bank indicated greater openness to lowering interest rates and acknowledged the impact of trade tensions on growth.
Speaking in Chicago on Tuesday, US Federal Reserve Chairman Jerome Powell admitted that ongoing trade conflicts had dimmed the growth outlook — remarks widely seen as opening the door to a potential interest rate cut.
“We are closely monitoring the implications of these developments for the US economic outlook and, as always, we will act as appropriate to sustain the expansion,” Powell said.
Photo: EPA-EFE
The comments signal a shift in the policy of the Fed, which has kept interest rates unchanged this year after a series of hikes last year and previous years.
“Powell changed the Fed messaging just enough to avoid signaling a shift from patient to panicked... It was music to US investors’ ears who have been starved of positive news of late,” SPI Asset Management managing partner Stephen Innes said.
Powell’s second in command, Richard Clarida, told CNBC that tariffs so far have had only a small effect on the economy, but that could worsen if more tariffs and retaliation are imposed.
While he declined to predict a rate cut, he said: “If we get a sense that the outlook is slower — growth is slower than we expect, and if we get the sense that underlying inflation is below where we want to be ... we’re going to put in place appropriate policy to achieve those goals.”
On Wall Street, the Dow Jones Industrial Average, the S&P 500 and the NASDAQ clocked their biggest one-day gains in five months, with all three indices ending up more than 2 percent on Tuesday.
In Asia, Tokyo jumped 1.8 percent, while Taipei and Hong Kong each rose 0.3 percent.
Seoul edged up 0.1 percent, while Shanghai was flat.
Sydney managed an increase of 0.4 percent even as government statistics showed near-zero growth the previous quarter, underscoring fears for the economy.
European markets made fractional gains in early trade, with London, Frankfurt and Paris edging up 0.1 percent.
The buying was also supported by more favorable news on the trade front, with Beijing backing negotiations to resolve its spat with Washington and congressional Republicans opposing US President Donald Trump’s tariff threats against Mexico.
Worries over the US-China trade dispute “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.
However, a new 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 expected to expand 2.6 percent this year, 0.3 percentage points lower than the January forecast, and well below the 3 percent growth seen last year, according to the Global Economic Prospects report.
“The bottom line is that the global economy is coming to a crossroads,” said World Bank economist Ayhan Kose, who oversaw the report.
“We need to find ways to stabilize growth and I think further escalation of these trade tensions is now the No. 1 risk that could actually weigh on the outlook,” he said.
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