Asian equities take cue from Wall Street’s bounce, Powell boosts the dollar

Sydney — Asian shares followed Wall Street higher on Wednesday, as a bullish outlook from the head of the US Federal Reserve buoyed the dollar, lifted Tokyo shares to a one-month top and sent gold to a one-year trough.

Japan’s Nikkei leapt 1% as a weakening yen promised to fatten exporters’ profits.

MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.5% and Shanghai blue chips 0.6%.

Fed chairman Jerome Powell stuck with an upbeat assessment on the US economy while downplaying the impact of global trade risks on the outlook for interest rate increases.

“The outlook is consistent with two further quarter-point rate increases this year, likely in September and December,” said Barclays economist Michael Gaspen.

“The main risk is that individuals, business, and financial markets have underestimated the desire of Trump to re-orient trade flows and that further steps to implement tariffs will lead to a reduction in confidence, a slowdown in hiring, and a correction in equity markets,” he said.

Bank of America Merrill Lynch’s latest fund manager survey showed a trade war remained the biggest risk, cited by 60% of respondents.

For now, US companies seem to be profiting mightily from tax cuts as the earnings season shifts into high gear. Analysts now forecast second-quarter S&P 500 earnings growth of 21.2%, up from 20.7% on July 1.

Of the 39 companies in the index that have reported so far, 84.6% have come in ahead of street expectations.

The Dow Jones industrial average ended Tuesday 0.22% higher, while the S&P 500 gained 0.4% and the Nasdaq 0.63%.

“The S&P has finally broken to the upside through 2,800, out of the range that has confined it for most of this year, and this could now be the start of a grind higher in global equities over the next few weeks,” wrote analysts at JPMorgan in a note.

Next stop is the record high of 2,872 reached in January.

Pound in peril

Powell’s support for more rate hikes sent two-year Treasury yields to their highest in nearly a decade and lifted the dollar broadly.

Against a basket of currencies, the dollar was up at 95.010, after jumping 0.46% overnight. It also climbed to its highest since January against the yen at ¥113.07, before steadying at ¥112.92.

The euro was stuck at $1.1655, after weakening 0.4% on Tuesday.

The pound suffered another bout of Brexit blues after British Prime Minister Theresa May only just cleared the latest parliamentary hurdle to her leaving plans.

Bank of England governor Mark Carney warned a no-deal Brexit would have “big” economic consequences and force a review of plans to raise interest rates.

Sterling was last huddled at $1.3110, after sliding 0.9% overnight.

The rising dollar coupled with the prospect of higher US interest rates spelt trouble for gold, which crashed through major chart support to hit a one-year low.

Spot gold was hovering at $1,228.11 an ounce, having cratered at $1,225.58. The slightly less precious metal is down more than 5% for the year.

Oil prices also eased after an industry group reported an unexpected increase in US crude inventories. Brent fell 29c to $71.87 a barrel, while US crude was quoted down 32c at $67.76 a barrel.