Traders see an 84% chance of a Fed rate cut next month after Powell signaled at Jackson Hole the central bank may ease before inflation fully returns to target amid a softening jobs market. Still, officials remain split on the outlook, warning of lingering price risks from US trade tariffs ahead of this week’s key inflation data.
“Powell’s wish-to-reality signal is set to serve as glue on the cracks beneath Asia’s mildly shaking markets,” said Hebe Chen, analyst at Vantage Markets. “For investors, this fresh dose of optimism is likely to keep risk appetite buoyant” through to the Sept. 17 Fed board meeting.In Asia, Chinese stocks will be in focus with questions mounting over how much further the market can rally with concerns of trade tariffs and a deep-rooted property crisis weighing on the economy. While the market’s steady advance may suggest less risk of a sudden correction, some analysts are warning that a bubble is in the making.
The Nasdaq Golden Dragon China Index rose 2.7% Friday and futures indicated a stronger open for shares in Hong Kong and mainland China.“Markets might be expecting, either correctly or incorrectly, that macroeconomic fundamentals will improve,” said Homin Lee, senior macro strategist at Lombard Odier Ltd. in Singapore. “But a bull market will not be sustainable if inflation remains close to 0% and corporate pricing power faces severe headwinds from weak domestic demand.”
Sentiment was weak heading into Friday, with the S&P 500 falling for five straight sessions, its longest losing streak since January, as Wall Street pulled back on bets that the Fed was about to reduce borrowing costs. Powell’s comments halted those concerns, sending the S&P 500 soaring to its best day since May.
However, Powell, in what was likely his final Jackson Hole speech at the helm of the Fed, detailed the cloudy signals coming from the economy.
While the effect of tariffs on prices is now visible, there are still questions about whether that will reignite inflation in a more persistent way, he said. He called the labor market’s current status — with both falling demand for, and declining supply of workers — “curious.”
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