Powell primes markets for July Fed rate cut

11 July, 2019

Fed chair Jerome Powell’s latest dovish comments have removed market doubts over a US interest rate cut in July. Such signals have translated into the Dollar index (DXY) falling to around the 97 psychological level at the time of writing, allowing Asian currencies to climb higher against the Greenback. Asian stocks are also opened in the green, taking their cues from gains in US stocks, with the S&P 500 breaching the 3000 level for the first time ever before moderating.

Despite the June non-farm payrolls data still pointing to a robust jobs market, Powell said that the case for lower US interest rates has strengthened, citing “crosscurrents” pertaining to trade tensions and global growth, while the muted US inflation no longer appears transitory.

How deep will the Fed cut interest rates?


Powell’s speech on Wednesday essentially frames the July FOMC policy meeting as a decision between a 25- or 50-basis point rate cut. Whether FOMC officials will opt for the ‘kitchen knife’ or the ‘machete’ when cutting US interest rates can have a broader effect on global sentiment.

Should US monetary policy settings be eased by a wider-than-expected margin later this month, investors may question the strength of US economic growth momentum. Such concerns would encourage a softer-Dollar environment, presenting Asian assets with more potential upside, while safe havens such as Gold and the Japanese Yen could also advance further.

US-China trade impasse remains a key uncertainty for global growth


Still, potential gains in Asian assets remain capped by the lingering uncertainties surrounding US-China trade tensions. Risk appetite will likely be reined in, until both countries break the impasse and reach a deal that alleviates the global growth outlook. Market sentiment surrounding the strength of the global economy could be further influenced by China’s economic data releases due over the coming days, including external trade, industrial production, and Q2 GDP, as the world’s second largest economy continues to find its path towards a more sustainable path amid heightened external headwinds.

Oil on course for summer of gains


The moderating Dollar has also given Oil prices another reason to climb higher, with New York crude and Brent futures gaining over three percent respectively on Wednesday, to reach their highest levels since May. Oil’s climb was triggered by constrained US supplies, with production in the Gulf of Mexico being reduced by about a third given the possibility of an incoming hurricane, along with the steep decline reported in US crude inventories.

Oil bulls will be encouraged by the transpiring tailwinds, including rising geopolitical tensions, a potential US interest rate cut, and rising summertime demand, while the OPEC+ supply cuts extension effectively places a sturdier floor under Oil prices. Yet it remains to be seen whether Oil can prolong its upward climb, given the persisting uncertainties surrounding global demand for the year.


Source  
Asset correlations not making sense

US and European equities are at record levels and US Treasuries are trading close to their October highs; meanwhile, gold prices have climbed to a new...

Gold shaky as virus concerns ease

Gold struggled to shine on Wednesday as demand for safe-haven assets dropped on signs the spread of the coronavirus outbreak in China may...

Uber earnings preview: Is a surprise on the cards?

The past few months have been rough for Uber Technologies, Inc as the multi-national ride-hailing giant grappled with profitability concerns...


Trade deal hopes lift risk mood

The mood across financial markets continued to brighten on Tuesday amid signs of further goodwill between the US and China ahead...

UK elections, trade talks, CB meetings

Traders and investors are bracing for a volatile week ahead as several events may determine the direction of markets for the foreseeable future...

Markets keep dancing on trade headlines

After a steep fall in global equity markets over the first two trading days of December, sentiment turned around once more and risk-on trade...


Global markets shaken by fresh trade concerns

It is another day, but the same old story with trade developments as conflicting signals on the progress of negotiations foster confusion and uncertainty...

Markets in wait-and-see mode

Another week, another record high for US stock markets despite renewed uncertainty and mixed messages from the US-China trade front...

Upbeat US data send stocks to new records

US major indices and Treasury yields rallied overnight as the S&P 500, Dow Jones Industrial Average and Nasdaq Composite all hit new record...