China shares jump as Fed hints at rate cut; 10-year Treasury yield drops below 2%
Mainland Chinese shares surged on the day, with the Shanghai composite adding 2.38% to about 2,987.12 and the Shenzhen component 2.34% higher to 9,134.96, while the Shenzhen composite gained 1.954% to 1,556.60.
Hong Kong’s Hang Seng index rose 1.1% as shares of Chinese tech behemoth Tencent jumped 1.56%.
In Japan, the Nikkei 225 gained 0.6% to close at 21,462.86, with shares of index heavyweight Softbank Group soaring 2.59%, while the Topix advanced 0.3% to end its trading day at 1,559.90. The moves in Tokyo came as the Bank of Japan kept interest rates unchanged, emphasizing global risks were rising over issues such as the ongoing trade tensions.
“Downside risks regarding overseas economies are big, so we must carefully watch how they affect Japan’s corporate and household sentiment,” the Japanese central banks said in a statement announcing the policy decision.
Over in South Korea, the Kospi closed 0.31% higher to 2,131.29, while Australia’s S&P/ASX 200 added 0.59% to finish its trading day Down Under at 6,687.40.
Asia-Pacific Market Indexes Chart
|NIKKEI||Nikkei 225 Index||NIKKEI||21462.86||128.99||0.60|
|HSI||Hang Seng Index||HSI||28550.43||348.29||1.23|
|ASX 200||S&P/ASX 200||ASX 200||6687.40||39.30||0.59|
|CNBC 100||CNBC 100 ASIA IDX||CNBC 100||8070.41||109.20||1.37|
The moves came as the Fed left interest rates unchanged at its monetary policy meeting, in line with expectations. The U.S. central bank did, however, drop the word word “patient ” from its statement and said it would “act as appropriate” to sustain the economy.
The Fed’s rate projections showed that eight Fed members see a cut this year, which traders took as a further sign the central bank was close to cutting rates. Its median forecast, however, still reflected no cuts this year, but additional easing in 2020.
Fed Chair Jerome Powell also said that some Fed officials believed the case for easier monetary policy had strengthened.
Following the Fed’s statement, the closely watched 10-year Treasury yield steadily slipped, and during Asian trading hours fell below 2% for the first time since November 2016. Gold prices also soared, with spot gold up more than 1.6% to around $1,382.01 per ounce.
Meanwhile, on the U.S.-China trade front, hopes in Beijing appear to have risen for a trade deal between the two economic powerhouses.
U.S. President Donald Trump and Chinese Xi Jinping are set to meet at the upcoming G-20 summit in Japan, which will happen next week. Trump said talks between the “respective teams” would begin prior to that.
“It is positive that they’re talking again,” Sian Fenner, lead Asia economist at Oxford Economics, told CNBC’s “Street Signs” on Thursday. “What would we be hoping is that at least we will see an easing in tensions so we won’t be seeing any further tariff hikes.”
“Will an agreement be achieved at this meeting? Very unlikely, there’s a lot of hurdles they still need to overcome,” she said, adding that “concessions on both sides” are needed.
“Although the Fed partiality has shifted from a wait and see mode to an easing bias, the fact that trade uncertainty and its impact on global growth has been the main catalyst for its change in stance, means that a new round of Fed easing is largely contingent on the outcomes from (the) upcoming G20 meeting between President Trump and Xi,” analysts at National Australia Bank wrote in a note.
“For now though, 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,” they wrote.
The U.S. dollar index, which tracks the greenback against a basket of its peers, was at 96.819 after slipping from levels above 97.6 yesterday.
The Japanese yen traded at 107.69 against the dollar after touching levels around 108.6 in the previous session, while the Australian dollar changed hands at $0.6905 after seeing an earlier low of $0.6875.
From levels around 6.93 earlier in the week, the offshore Chinese yuan jumped to 6.8577 against the dollar after touching an earlier high of 6.8535. Its onshore counterpart last traded at 6.8531 against the greenback, from levels around 6.92 earlier in the week.
Oil prices jumped in the afternoon of Asian trading hours, with the international benchmark Brent crude futures contract up 2.57% to $63.41 per barrel, while U.S. crude futures gained 2.79% to around $55.26 per barrel.
Tensions in the Middle East continued to remain high following recent attacks on two tanker ships in the Gulf of Oman. A U.S. official told NBC News on Thursday that an Iranian missile had shot down one of the country’s military drones.
— Reuters and CNBC’s Fred Imbert contributed to this report.
European stocks close higher after Bank of England holds rates; Delivery Hero up 10%
European Markets: FTSE, GDAXI, FCHI, IBEX
Technology stocks led gains with a 1.6% rise, while travel and leisure stocks were the worst performer, falling 1.1%. Germany’s DAX rose 0.4% and hit a nine-month high earlier in the session.
The week’s focus on central banks continued Thursday, as the Bank of England held interest rates steady at 0.75% while cutting its growth forecast for Britain’s economy to zero in the second quarter of 2019, citing global trade tensions and the growing risk of a damaging no-deal Brexit. Sterling was trading higher against the dollar following the Bank of England’s decision, reaching around $1.2682 on Thursday afternoon.
European Central Bank President Mario Draghi touted another round of stimulus on Tuesday, while Wednesday saw the U.S. Federal Reserve signal a rate cut later this year.
Investors also monitored geopolitical tensions Thursday after a U.S. drone was shot down in international airspace over the Strait of Hormuz, with Iran’s Revolutionary Guard claiming it had downed the drone as “a clear message” to Washington. Oil prices surged on the news.
Back in the U.K., Boris Johnson extended his lead in the fourth round of the race to become Britain’s next prime minister. Johnson, the favorite to replace Theresa May, won 157 out of 313 votes, and will face off against remaining candidates Michael Gove and Jeremy Hunt later today.
In terms of individual stocks, shares of German food delivery company Delivery Hero jumped nearly 10% to top the European blue chip index, on the back of the company raising its full-year revenue guidance again. Other delivery services also gained on the news.
At the other end of the Stoxx 600, British tour operator Carnival saw its shares tumble 11% during the session after cutting its full-year profit forecast.
Elsewhere, shares of Deutsche Bank closed down 2.7% after it was reported that the German lender is facing an FBI investigation over possible money-laundering.
S&P 500 closes at new record as Wall Street bets Fed will lower rates, Dow surges nearly 250 points
The S&P 500 surged 1% to 2,954.18, a record close. The broad index also hit an intraday record of 2,958.06. The Dow Jones Industrial Average closed 249.17 points higher at 26,753.17. The Nasdaq Composite gained 0.8% to end the day at 8,051.34.
The yield on the 10-year Treasury fell below 2% for the first time since November 2016. Investors cheered the decline in the benchmark for mortgage rates and corporate bonds.
The energy sector rose more than 2% to lead all 11 S&P 500 sectors higher as oil prices jumped. Tech gained 1.4% after shares of Oracle surged more than 8% on stronger-than-forecast earnings. General Electric’s 2.8% rise pushed the industrials sector up more than 1.6% on the day.
“Markets are based on numbers and perception. If the perception is rates are getting cut, that’s going to drive markets higher,” said Kathy Entwistle, senior vice president of wealth management at UBS. “UBS’ stance up until yesterday was we wouldn’t see any rate cuts this year. Now we see a much larger chance of a 50-basis-point cut.”
The Fed said Wednesday it stands ready to battle growing global and domestic economic risks as they took stock of intensifying trade tensions and growing concerns about inflation. Most Fed policymakers slashed their rate outlook for the rest of the calendar year by approximately half a percentage point in the previous session, while Chairman Jerome Powell said others agree the case for lower rates is building.
Policymakers also dropped “patient” from the Fed’s statement and acknowledged that inflation is “running below” its 2% objective.
Market participants viewed the overall tone from the U.S. central bank as more dovish than expected. Traders are now pricing in a 100% chance of a rate cut next month, according to the CME FedWatch tool.
China and the U.S. hiked tariffs on billions of dollars worth of their goods in May. Stocks turned around this month as traders bet the rising trade tensions, coupled with weaker economic data, would lead the Fed to ease its monetary policy stance.
The Fed’s message on Wednesday sent the 10-year Treasury yield to as low as 1.974% before ending the day around 2.02%. The yield stood at 2.8% in January.
“The FOMC reinforced the market’s conviction,” said Steve Blitz, chief U.S. economist at TS Lombard, in a note. “Barring a dramatic turnaround in the data, the next move is a cut - perhaps even a 50bp reduction.”
The dollar also took a hit against other major currencies. The dollar index dropped 0.5% to 96.65, led by a 0.6% slide in the euro. The yen and Canadian dollar also rose against the U.S. currency.
Energy shares got a boost from higher oil prices. The Energy Select Sector SPDR Fund (XLE) climbed 2.2% as shares of Exxon Mobil gained 1.7%. Oil prices surged 5.4% after a U.S. official said a drone was shot down over Iranian airspace.
Meanwhile, Slack shares surged more than 40% in their first day of trading. The stock closed above $38 after setting a reference price of $26.
Source for All Reports: CNBC