SYDNEY, July 10 2019 : Asian shares inched ahead today while higher Treasury yields lifted the dollar as markets wondered if the world’s most powerful central banker would confirm or confound expectations for U.S. policy easing this month.
Federal Reserve Chair Jerome Powell testifies before the U.S. Congress today and tomorrow and investors have a lot riding on him sounding suitably dovish.
Futures are still fully priced for a 25-basis-point cut at the Fed’s July 30-31 meeting, but have abandoned wagers on a half-point move. They had implied a 25% probability of an aggressive cut before Friday’s upbeat jobs report.
“The Fed’s consideration of rate cuts is not only about growth but also about inflation, which remains well below target, and inflation expectations, which were breaking to the downside before the Fed signalled the likelihood of cuts.”
Overnight, Atlanta Fed bank president Raphael Bostic let nothing out of the bag by saying the central bank was debating the risks and benefits of letting the U.S. economy run “a little hotter.”
Lurking in the background, U.S. and Chinese trade officials held “constructive” talks on trade by phone on Tuesday, White House economic adviser Larry Kudlow said.
The cooling in U.S. rate fever has seen bonds give back just a little of their huge rally, with yields on two-year Treasuries rising to 1.909% from the recent trough of 1.696%.
That in turn has helped the dollar bounce on a basket of currencies to 97.537 from a June low of 95.843.
The Mexican peso MXN= was nursing a few bruises after sliding yesterday when the country’s moderate Finance Minister Carlos Urzua suddenly resigned, citing “extremism” in economic policy.
The Canadian dollar CAD= was on the defensive ahead of a rate meeting by the Bank of Canada in case policy makers tried to slow the currency’s recent rally.
The dollar’s gains took the shine off gold, which eased 0.3% to $1,393.14 per ounce.
Oil prices were supported by Middle East tensions and OPEC supply cuts.
Brent crude futures rose 67 cents to $64.83, while U.S. crude gained 83 cents to $58.66 a barrel. – Reuters