Dovish Remarks from Fed’s Powell Underpin Asian, European Shares

Asia Pacific shares were higher on Thursday, following the lead from Wall Street the previous session, after U.S. Federal Reserve strongly indicated that U.S. central bank policymakers could be cutting interest rates as soon as its July 30-31 meeting.

Powell surprised investors on Wednesday with dovish remarks which seem to be indicating that something changed in the U.S. economy since the last Fed meeting on June 18-19 and his last public comments about rates on June 25.

In testimony before the House Financial Services Committee, Powell said, “Many FOMC participants saw that the case for a somewhat more accommodative monetary policy had strengthened. Since then, based on incoming data and other developments, it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook.”

The question being raised by investors is whether the Fed settles at a 25-basis point rate cut, or if it goes all in for a 50-basis point cut.

According to the CME Group’s FedWatch Tool there is now a 31 percent chance of a half-a-point rate cut and a 69 percent chance of a 25-basis point cut. Prior to Powell’s remarks, there was only a 3 percent chance of a steeper rate cut.

In Japan, the Nikkei 225 Index rose after shares of game maker Nintendo jumped more than 3.5% after the company announced a cheaper version of its Switch video game console.

J.P. Morgan Analysts:  Fed Rate Cut Would Ease Pressure on China’s Central Bank

Analysts at J.P. Morgan said an easing by the Federal Reserve would reduce pressure on China’s central bank to loosen monetary policy. This would give China more breathing room in shoring up its slowing economy. Some analysts are saying that if the Fed cut rates, it should prompt China’s central bank to take similar action.

European Markets Open Higher

Stocks are up in Europe in reaction to Powell’s dovish comments. However, eyes may shift to the Bank of England’s financial stability report at 10:30 GMT.

In a development that could renew concerns over additional U.S. tariffs on Europe, U.S. Trade Representative Robert Lighthizer said Wednesday that President Donald Trump has ordered a probe into whether France’s planned “digital services” tax is an unfair trade practice that targets U.S. tech giants.