Asian, US stocks rise as markets expect “swift” Fed stimulus

Asian stocks are taking their cues from their US counterparts to push higher, after Fed officials appeared to call for US monetary policy stimulus in the near-term. On Thursday, Federal Reserve Bank of New York President, John Williams, said that central banks must “take swift action when faced with adverse economic conditions”. Also, Federal Reserve Vice Chairman, Richard Clarida, said yesterday that policymakers “don’t need to wait until things get so bad” before cutting interest rates.

Safe haven assets have been boosted by risk appetite that is being curtailed by the thought of waning US economic growth. The Yen has strengthened below the 107.6 level against the US dollar, Gold prices briefly breached the $1450 handle, while the yields on 10-year US Treasuries aren’t straying far away from the two percent mark. Although central banks around the world have embarked on policy easing in a bid to support their respective economies, investors are left to ponder whether the stimulus will be enough to offset the effects from heightened US-China trade tensions which have already dragged global growth lower.

Dovish Fed makes for softer-Dollar environment for the rest of July

The dovish commentary by Fed officials underscored expectations that the US central bank will lower interest rates by a larger quantum at the FOMC meeting later this month. At the time of writing, markets now expect a 43.5 percent chance of a 50-basis point cut at the July 30-31 meeting, as seen in the Fed funds futures.

Despite the better-than-expected June non-farm payrolls, retail sales, and factory output data, the Fed is expected to press ahead with at least a 25-basis point interest rate cut this month. Given that US inflation remains muted while global uncertainties continue to prevail, lower US interest rates should help ensure that US economic growth momentum remains steadfast. However, ramped-up expectations over a bigger July Fed rate cut are undermining the Greenback, and are likely to contribute to a softer-Dollar environment for the rest of this month. The weaker Dollar is set to play into the hands of Gold and Yen bulls.

Oil tumbles as slowing global demand overshadows rising geopolitical tensions

Both WTI crude and Brent futures have each shed over seven percent so far this week, with the former briefly dipping below $55/bbl before recovering slightly, while the latter has dropped below $62/bbl at the time of writing. US inventories increased by over 9 million barrels last week, which added to market jitters that the growth in global demand is lagging severely behind the rise in output.

The slowdown in global growth has overshadowed market sentiment for Oil, as rising geopolitical tensions have failed to live up to their potential of sending prices higher. With US-China trade negotiations merely offering a pittance to risk appetite since the tariff truce was announced at the end of June, any further deterioration in the global demand outlook could open up further downside for Oil prices. Still, markets can take some comfort in the OPEC+ decision to extend its supply cuts through March 2020, which should help support Oil prices over the coming months.