Wall Street followed Europe higher after a surge in Frankfurt's DAX on the return of German and Swiss investors from an extended holiday weekend. He expects the central bank to lower rates by a quarter percentage point in September and December, even with the US immigration deal with Mexico that forestalled the threat of USA import tariffs on Mexican goods.
The dollar fell on Wednesday as rising trade tensions between Washington and Beijing and growing bets on a US interest rate cut sapped investor demand for the currency.
Powell, in a speech last week, opened the door to interest-rate cuts after holding in May that below-target inflation was due to transitory factors. Retail sales were down by 0.2% m/m in April but are forecast to have rebounded by 0.6% in May. MSCI's broadest index of Asia-Pacific shares outside Japan closed 1.08% higher, while Japan's Nikkei rose 0.33%. The S&P 500 index ended up by 2.1 %.
But Fed Chairman Jerome Powell hinted during a speech last week that policymakers were willing to cut interest rates, depending on how global trade developments impact the US economic outlook and whether inflation remains muted. An increase in prices could temper bets for rate cuts as the Fed uses rate hikes to contain inflation. Goods prices fell 0.2%. The benefits of the 2017 tax cuts have waned and President Donald Trump's tariff threats with China and Mexico have roiled financial markets. They are expected to meet at a Group of 20 summit on June 28-29.
The dollar has suffered a setback after the latest escalation of the U.S.
Spot gold dropped 0.2% to $1,325.34 an ounce.
The Trump administration last month signaled intent to turn the $5.1 trillion-a-day global currency market into the next battlefield of his trade war with a Commerce Department plan that would allow the U.S.to apply countervailing tariffs on nations seen to be actively driving down their currencies to boost exports. The Fed will update its economic forecasts as well as its famous dot-plot chart at its June meeting, with the big question being on whether or not policymakers will foresee a rate cut in their projections. The solid increase in health care costs at both the consumer and production levels last month suggests a pickup in the core PCE price index in May.
Oil futures rose as firmer equities and expectations OPEC and its allies will keep withholding supply countered concern about slowing economies and demand.
"The reason they'd come in with 50 basis points is that the emphasis would be on surprising the markets, " senior US economist Millar said.