Stocks surge after Fed signals probable rate cut

Daniel Fowler
July 12, 2019

The dollar was little changed at 108.490 yen JPY= after rebounding from a low of 107.860 plumbed on Thursday in response to dovish comments from Fed Chairman Jerome Powell, which had revived the chance of a 50 basis-point cut.

Fed funds futures are close to discounting three 25-bps rate cuts by June 2020; after the June US jobs report, rates markets were pricing in just over two rate cuts.

At the same time, in the view of Fed officials, Trump's policies - including higher tariffs and an unpredictable governing style - have increased economic risks and led them to consider the same rate reductions Trump has demanded.

Markets Insider is looking for a panel of millennial investors. "For central banks like the Federal Reserve or European Central Bank, there is too much global reliance on the stability of asset prices in order to dramatically surprise market participants".

With Fed rate cut odds climbing again, the US Dollar (via the DXY Index) has been knocked lower, keeping the threat of a major US Dollar top in place.

Federal Reserve Chairman Jerome Powell reiterated on Wednesday that he would serve out his full four year term, despite continued criticism from President Donald Trump-the man who appointed him.

In late 2017, Trump nominated the Powell, an investment banker, to succeed Janet Yellen as chair of the Fed, the world's most powerful central bank. The Fed Funds rate is now 2.5%.

"It appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the USA economic outlook", Powell told lawmakers.

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Powell's testimony followed weeks of intense speculation in the market that the US central bank would soon slash borrowing costs for companies and consumers in order to fend off an economic slowdown that some say has been a long time coming, but that has been made more likely by the 2019 escalation of the USA trade war with China.

A man counts USA dollars in Tehran, Iran July 7, 2019.

The comments sparked much-needed relief on trading floors around the world, having suffered steep losses at the start of the week in reaction to a blockbuster USA jobs report that dented hopes for a steep Fed cut at its next policy meeting.

"The statement also offered some positives and sounded more balanced than market moves initially suggested".

"Powell's testimony made sure that there is a rate cut on the cards this month".

Above: Euro-to-Dollar rate shown at 4-hour intervals. Traders should appreciate the idiosyncratic way interest rate markets are now discounting Fed rate cuts: the rate cuts are extremely frontloaded.

It's raised rates nine times since the end of 2015 but with the growth-boosting effect of 2018's mammoth tax cuts now wearing off and the U.S.

While the direction of rates is expected to be downward this year, there are conflicting opinions on how deep July's cut will be and how many more there will be this year.

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