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Pow Powell

Pow Powell

US Federal Reserve chair Jerome Powell soothed investor trade fears with comments overnight that the Fed stands ready to take “appropriate action” should “trade negotiations and other matters” slow economic expansion. Shares jumped, bonds eased off highs and industrial commodities rose. Asia Pacific futures markets indicate opening gains of around 1% for most markets.

The comments were echoed by the vice chair Richard Clarida in an interview. Both speakers took a balanced approach, expressing concerns about the potential for excesses to build in financial markets. Short-term interest rate traders are now pricing a better than 50% chance of a rate cut in July, despite reasonably robust recent data. Bond traders went in the opposite direction, lifting ten-year bond yields by five points, possibly reflecting greater inflationary pressures.

The comments follow yesterday’s interest rate cut from the Reserve Bank of Australia. Local investors were barely moved by the action, but may re-think their response today. The outlook for regional currencies shifts with ongoing US dollar weakness. International investors may be tempted by the potential for strength Japanese yen and Australian dollar.

Today’s trading may be shaped by China Caixin PMIs due mid-session. Expectations that the services sector expanded in May despite trade concerns are illustrated by a consensus estimate of the PMI at 54.0. Australian GDP growth is forecast to slow to an annual rate of 1.8% from 2.3% previously.

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