BCN-31-32 Dollar sinks, Asia stocks rally as dovish Fed spurs rush to risk

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ASIA-MARKETS-UPDATE

Dollar sinks, Asia stocks rally as dovish Fed spurs rush to risk

HONG KONG, June 20, 2019 (BSS/AFP) – The dollar and US Treasury yields
fell, while Asian equities rallied Thursday after the Federal Reserve
indicated it could soon cut interest rates, adding to optimism of a
breakthrough in the China-US trade row.

Oil prices extended already strong gains after Iranian claims it had shot
down a US drone in its airspace added to geopolitical tensions.

The softer slant from the US central bank provided more support to global
investors, who were already in buoyant mood after Donald Trump flagged
positive talks with China’s Xi Jinping and said they would meet next week.

After a much-anticipated meeting, Fed boss Jerome Powell said officials
felt the case for a reduction had “strengthened”, citing the trade standoff
with China and weak inflation, adding it would “act as appropriate” to
support growth.

The bank also dropped the word “patient” in describing its assessment of
economic data, fuelling speculation of a reduction as soon as July.

“The forward guidance from the Fed was no longer about being patient but
being pragmatic,” said Kerry Craig, global market strategist at JP Morgan
Asset Management. “As inflation is taking longer to return to target and
trade uncertainty is weighing on the global outlook, the Fed is singing a
dovish tune.”

He added that Powell “walked a fine line, highlighting a level of
confidence in the US economy, even as growth is expected to slow and
vulnerabilities from global politics increase”, which was enough not to cause
concern to traders.

Analysts at NAB bank said “the change in the Fed’s bias has encouraged the
market to increase its expectations that a new round of easing is just around
the corner”.

The news hit the dollar, which fell across the board on foreign exchanges
with higher-yielding units boosted by a pick-up in risk sentiment. The South
African rand was 1.8 percent higher, South Korea’s won gained 1.2 percent and
Canada’s dollar rose 1.1 percent. There were also big gains for China’s yuan,
the Australian dollar, the Thai baht and Mexican peso.

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ASIA-MARKETS-UPDATE 2 LAST HONG KONG

The dollar was even down against the euro, which has come under pressure
since the European Central Bank hinted Tuesday at its own rate cuts, and the
Brexit-battered pound.

– Iran fans oil rally –

The prospect of lower borrowing costs lifted equity markets on Wall
Street, while the yield on US Treasuries fell below two percent for the first
time since 2016 — having been above three percent in November.

Tokyo ended 0.6 percent higher as traders shrugged off a stronger yen,
Hong Kong rose 1.2 percent and Shanghai finished 2.4 percent higher, with
Sydney up 0.6 percent.

Singapore added 0.8 percent, while Taipei and Manila each gained 0.1
percent up, though Wellington and Jakarta were slightly lower.

In early European trade London rose 0.3 percent, Paris jumped 0.7 percent
and Frankfurt climbed 0.8 percent.

Focus now turns to the meeting between Trump and Xi on the sidelines of
the G20 summit in Osaka next week, with optimism at its highest since last
month after the US president’s tweet about “a very good telephone
conversation” with his Chinese counterpart.

On oil markets both main contracts were up more than two percent after
Tehran said it had shot down a US “spy drone”.

Crude had already been well up after official data showed a drop in US
inventories — indicating a pick-up in demand — and news OPEC and other
producers led by Russia had agreed a date to discuss further caps.

The dollar’s sharp drop also provided healthy support, making the
commodity more attractive to investors using other currencies.

Iran’s Revolutionary Guard said it had downed the US aircraft after it
violated Iranian airspace near the Strait of Hormuz, in the latest incident
to stoke tension in the strategic sea lane. The development comes after
Tehran was blamed for attacks on two tankers in the strategically crucial
Gulf of Oman.

There was no immediate reaction from the United States but the move adds
to concerns of a flare-up between the old foes in the region.

“This will only stoke tensions in the region and produce short-term
support for oil prices,” said Neil Wilson, chief market analyst at
Markets.com. “We await to see whether this escalates further — the response
from the White House will be important.”

– Key figures around 0810 GMT –

Tokyo – Nikkei 225: UP 0.6 percent at 21,462.86 (close)

Hong Kong – Hang Seng: UP 1.3 percent at 28,550.43 (close)

Shanghai – Composite: UP 2.4 percent at 2,987.12 (close)

London – FTSE 100: UP 0.3 percent at 7,428.08

Euro/dollar: UP at $1.1288 from $1.1231 at 2100 GMT

Pound/dollar: UP at $1.2696 from $1.2646

Dollar/yen: DOWN at 107.68 yen from 108.08 yen

Oil – West Texas Intermediate: UP $1.59 at $55.56 per barrel

Brent North Sea: UP $1.64 at $63.46 per barrel

New York – Dow: UP 0.2 percent at 26,504.00 (close)

BSS/AFP/HR/1440