Stocks gain, dollar sags as Fed chief shores up rate cut prospects

Markets turn cautious and vigilant as Powell seizes centre stage

Markets turn cautious and vigilant as Powell seizes centre stage

The U.K.'s FTSE 100 Index fell 0.3 per cent, its sixth consecutive decline. The oil and gas sector as well as defensive stocks led the gains.

In an appearance before his congressional overseers on Wednesday, Powell confirmed that the USA economy is still under threat from disappointing factory activity, tame inflation and a simmering trade war.

Powell's comments spurred a rally in shorter-maturity Treasuries.

"But traders need to be careful as Brexit uncertainty remains the major drag on sterling, whilst the dollar is showing some resilience and could be exposed to significant upside risks if Powell today disappoints the market by not being as dovish as investors hope".

The MSCI Emerging Market Index increased 0.6%.

The S&P 500 Index gained 0.3 per cent as of 12:09 p.m.

The cooling in US rate fever has seen bonds give back just a little of their huge rally, with yields on two-year Treasuries US2YT=TWEB rising to 1.917% from the recent trough of 1.696%.

USA stocks ended higher on Wednesday and the S&P 500 briefly crossed 3,000 points for the first time following Powell's remarks.

USA equities rallied late to close at a record high, while Treasuries retreated after the latest American inflation reading came in hotter than anticipated.

Federal Reserve Chair Jerome Powell, who struck a dovish tone before a congressional panel Wednesday, returned to Capitol Hill to answer senators' questions and suggested that the central bank has room to ease as the tie between the inflation and jobless rates has broken down.

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Elsewhere, Kansas City Fed president Esther George said U.S. inflation was unlikely to surge anytime soon, but noted that keeping interest rates too low for too long could put financial stability at risk.

'The focus going forward is United States data, such as tonight's CPI, and whether the economy warrants a 50 basis point rate cut this month'.

The probability of a 25 bps cut was 98.5% on Wednesday, with a 1.5% chance of a 50-point cut. Minutes from the Fed's June meeting confirmed an inclination among officials to ease policy soon.

In the currency market, fading Fed cut expectations helped the dollar.

The dollar index.DXY, tracking the greenback against six major currencies, dropped 0.29%. It was still some distance away from a six-month trough of 106.780 set on June 25.

West Texas Intermediate crude rose 0.3% to $60.59 a barrel after surging 4.5% Wednesday.Gold futures rose 0.4% to $1,424 an ounce. Yields on two-year Treasuries rose to 1.917 per cent from their recent low of 1.696 per cent and Europe's benchmark yields up around five basis points. European government bonds were mixed. Britain's 10-year yield jumped eight basis points to 0.836 per cent, the largest surge in 14 weeks.

In commodities, US crude oil futures climbed to a six-week high as oil rigs in the Gulf of Mexico were evacuated before a storm, while an incident with a British tanker in the Middle East highlighted ongoing tensions in the region. Global benchmark Brent crude futures jumped 0.9% to $64.74 per barrel.

Futures in Japan pointed to a flat start, while contracts rose in Hong Kong and Australia.

Treasury yield curve may flatten ahead of Fed's July meeting as markets are already more than fully priced for an "insurance" rate cut.

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