ECB hopes, Fed interest rate cuts boost equities, British pound plummets

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From Shinichi Saoshiro

TOKYO, 23 July – Expectations that the European Central Bank and the Fed will cut interest rates have boosted global equity markets as the pound weakens in fears that probably new Prime Minister Boris Johnson will lead Britain to exit the European Union.

The MSCI’s broadest index for Asia Pacific equities outside Japan rose 0.15%.

The Japanese Nikkei rose by 0.95%.

The Shanghai Composite Index gained 0.2%. Australian equities rose by 0.4% and South Korea’s KOSPI by 0.45%.

The S&P 500 approached a record high overnight, supported by expectations that the Fed would cut interest rates at its July 30-31 policy meeting.

European equities also rose on Monday, with the European Central Bank cutting interest rates by 10 basis points on Thursday.

However, as the central bank’s easing was no longer a new issue, market gains were limited.

“The likelihood of the Fed weakening supports equity markets, but the likelihood of a 25 basis point rate cut has already been widely taken into account,” said Soichiro Monji, senior strategist at Sumitomo Mitsui DS Asset Management.

In the currency markets, the pound was down 0.1% to $1.2465, heading for the third phase of losses.

Sterling was under pressure as it was likely that the British ruling Conservative Party would elect the Eurosceptic Johnson as its new leader and prime minister to replace Theresa May. The result of the weeks-long internal party election will be announced on Tuesday.

Some investors fear that Johnson could pull Britain out of the European Union on 31 October without a trade deal to reassure stubborn anti-EU members of his Conservative Party.

The dollar index rose by 0.15% to 97.380 against a basket of six major currencies, supported by a rise in US yields.

The dollar gained 0.15% to 108.040 yen.

The euro fell 0.1% to $1.1197, burdened by the possibility of easing by the ECB.

“It will take a bold move on the part of the ECB to both satisfy markets demanding gradual easing and transform the economy while remaining within its institutional framework and not destabilizing the financial system,” wrote Carl Weinberg, chief economist at High Frequency Economics.

The New Zealand dollar fell 0.3% to $0.6739, partly due to news from the Reserve Bank of New Zealand (RBNZ), which put pressure on unconventional monetary policy strategies, with interest rates already at a record low of 1.5%.

Crude oil prices rose again after two days of strong gains due to increased tensions in the Middle East.

Brent crude oil rose 0.08% to $63.31/barrel after rising 1.2% the previous day after Iran had concerns about possible supply disruptions following the seizure of a British tanker at the end of last week. (Reporting by Shinichi Saoshiro; editing by Simon Cameron-Moore)

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Mette Frederiksen is a The Washington Newsday correspondent. With her coverage of general science, NASA and the interface between technology and society, Frederiksen has been in the Science Desk's Technology Beat since joining Washington Newsday in 2018.

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