In This Article:
* Many Fed policy makers now see rate cuts this year
* U.S. stock prices near record peak, 10-year yield near 2%
* Markets price in 75 bp cuts by year-end in total
* Asian stock markets: https://tmsnrt.rs/2zpUAr4
By Hideyuki Sano
TOKYO, June 20 (Reuters) - A gauge of global stock markets edged near this year's peak while benchmark U.S. Treasury yields and the dollar dropped after the Federal Reserve signalled possible interest rate cuts later this year.
MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.2% while Japan's Nikkei gained 0.5%.
The MSCI ACWI, which incorporates readings of 49 equity markets across the world, gained 0.2%, having recovered a large part of its losses made after U.S. President Donald Trump threatened new tariffs on all of China's imports last month.
Signs that China and the United States are returning to the negotiating table after a six-week hiatus also bolstered risk sentiment.
The rally in stocks comes as a host of Asian central banks are scheduled to hold policy meetings later in the day, with most expected to flag moves toward looser monetary settings.
On Wall Street, the S&P 500 gained 0.3% to 2,926, just 19 points off its record closing high hit on April 30.
The U.S. Federal Reserve said on Wednesday it was ready to battle growing global and domestic economic risks with interest rate cuts beginning as early as next month, as it took stock of rising trade tensions and growing concerns about weak inflation.
The bulk of Fed policymakers slashed their rate outlook for the rest of the year by roughly half a percentage point, and Fed Chairman Jerome Powell said others agree the case for lower rates is building.
Many investors viewed the overall tone as more dovish than their expectations, sending the 10-year U.S. Treasuries yield to as low as 1.986%, its lowest level since November 2016.
The two-year yield fell to 1.721%, a level last seen in November 2017.
Money market derivatives, such as Fed funds futures and overnight indexed swaps, are fully pricing in a rate cut of 25 basis points at next policy review on July 30-31, with about one-third chance of a bigger 50 basis point cut.
A total of 75 basis point reduction is priced in by the end of year.
However, such aggressive rate cuts when the stock prices are so close to record peaks would be rare, if not unprecedented, making some investors nervous about whether the Fed may be over-reacting.
"It seems the Fed is getting ahead of risk and doing whatever it takes to avoid downside implications due to a potential slowdown," said Robin Anderson, senior global economist at Principal Global Investors in Des Moines, Iowa in the United States. "However, in the event inflation picks backs up, I'm apprehensive the Fed could be behind the curve if rates do in fact get cut too soon."