As expected, Federal Reserve Chairman Jerome Powell again sent a strong signal of a rate cut in his testimony at a congressional hearing on Wednesday. In the view of market participants, a July rate cut by the Fed is just one step away. This triggered a chain reaction in global stock and commodity markets, with all three major U.S. stock indexes rising and the dollar weakening that day. Industry insiders said prices of gold and other commodities may extend their upward trend.
"Inflation is running below target, and concerns over global trade tensions and weak economic data continue to weigh on the U.S. economic outlook. We will closely monitor economic data and are prepared to take appropriate action as needed to sustain the economic expansion," Powell said in his testimony. Several members of the Federal Open Market Committee (FOMC) believe that a more accommodative monetary policy needs to be considered.
Traders were quick to notice the word "continue" in the testimony, and expectations for a rate cut subsequently rose. Data from the CME FedWatch on the 11th showed that market expectations for a 50-basis-point rate cut by the Fed in July rose to 32.8% from 29.2% the previous day, while expectations for a 25-basis-point cut fell to 67.2% from 70.8%.
"Powell's latest remarks removed market doubts about a July rate cut and set the stage for a 25 or 50 basis point reduction at that meeting," said Chen Zhonghan, market analyst at FXTM. He noted that regardless of which basis point choice is made, it will have broad implications for global markets.
Although June nonfarm payrolls were strong, Powell said they would not affect the Fed's expectations. In this regard, UBS believes that on the one hand, the core PCE price index remains clearly below the 2% inflation target; on the other hand, a rate cut is also a signal from the Fed to the market that it intends to push inflation toward the target.
Financial markets reacted strongly to Powell's dovish testimony. U.S. stocks closed higher across the board on Wednesday, with the S&P 500 briefly surpassing the 3,000-point intraday record high. In Asia-Pacific markets on Thursday, benchmark indexes in Japan, South Korea, Indonesia and elsewhere generally advanced. At 17:46 Beijing time, benchmark indexes in the UK, Germany and France were up between 0.16% and 0.31%.
The dollar pulled back noticeably. The dollar index, which measures the greenback against six major currencies, fell 0.41% on Wednesday to close at 97.0992 in late foreign exchange trading. Earlier, supported by the nonfarm payrolls data, the index had climbed back above 97.50. At 18:13 Beijing time, the index was down 0.18% at 96.94.
At the same time, near-month gold futures in New York rose nearly 1%, and spot gold also gained 0.15%.
This positive development also spilled over into the A-share market, with gold concept stocks surging during trading on the 11th. According to Choice data, the gold concept sector saw a net capital inflow of 247.2 million yuan, up 3.37%, ranking first among all concept sectors. The precious metals sector overall saw an inflow of 99 million yuan, ranking second among sectors by capital inflow.