Rolling coverage of the latest economic and financial news, including new healthchecks on the world’s service sector companies
Latest: IMF warning on ChinaWall Street posts best day in five monthsDow Jones jumped over 500 pointsInvestors suspect US interest rates will be lowered soonFed chair vows to ‘act as appropriate’ (ie cut rates?)
Newsflash: The International Monetary Fund has cut its growth forecast for China, and warned that the trade war with the US is hurting.
The Fund now expects China’s economy to grow by 6.2% this year, down from 6.3% previously. That reverses a small upgrade earlier this year.
“The near-term outlook remains particularly uncertain given the potential for further escalation of trade tensions.”
Everyone loses in a protracted trade war. If tensions escalate, China’s growth could be significantly affected & stimulus would be needed. But China needs to focus on expanding social safety net rather than expanding infrastructure —Kenneth Kang, IMF Deputy Director pic.twitter.com/9aUJ9M6TPt
European stock markets have also risen in early trading.
Britain’s FTSE 100 has gained 30 points to a one-week high of 7,244.
Powell gave the markets what they wanted to hear, and the result was a spectacular rally, as traders increased their bets of a rate cut happening before the year end.
Jerome Powell’s speech followed similar comments from other Fed officials earlier in the week. This is usually a sign that the Fed wants to prepare investors for a shift in policy.
The US Federal Reserve’s dual mandate is to keep American inflation steady and unemployment as low as possible.
But… it often feels like there’s a third mandate – keep the stock markets up.
“The market wanted to hear from Powell. When Powell says ‘we are watching the market’ — whether it’s right or wrong — the market starts believing in a Powell put,” said Keith Lerner, chief market strategist at SunTrust Private Wealth. He also noted “sentiment became extremely negative on a short-term basis.”
These comments come amid increasing expectations for a Fed rate cut. The CME FedWatch tool indicated a 90% chance of a September rate cut. Expectations for a second rate cut in December were also above 80%.
Wow – “These comments come amid increasing expectations for a Fed rate cut. The CME FedWatch tool indicated a 90% chance of a September rate cut. Expectations for a second rate cut in December were also above 80%.” https://t.co/xQEoYyyK3N
Government bond prices are also being driven higher, by the prospect of interest rate cuts.
This has pushed down the yield (effectively the rate of return) on Japan’s sovereign debt today. Two-year Japanese bonds are now deeper into negative territory, meaning an investors is guaranteed to lose money if they hold them until they mature.
The #Fed leaning towards cutting rates isn’t just affecting #US markets. 10-year JGB yields have fallen to their lowest since August 2016 as #BOJ rate cut odds rise. https://t.co/4p6wZ9VR3f pic.twitter.com/SExdKncYYU
Japan’s stock market has matched last night’s Wall Street rally, by jumping by 2% as well.
How much truth there was in the big rally for markets yesterday and how much was dramatised is open for question.
Indeed, the last 24 hours has seen a marked change in sentiment and although it’s hard to completely attribute the move to Powell’s comments at the Fed conference yesterday, the fact that the Chair seemingly didn’t push back on very dovish market pricing did at least fill investors with a bit more confidence.
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
DOW JONES closing at 25332 +512 Points Up…. pic.twitter.com/S290D6C874
We do not know how or when these issues will be resolved.
“We are closely monitoring the implications of these developments for the U.S. economic outlook and, as always, we will act as appropriate to sustain the expansion…
@AP Dow Jones industrials gain 512 points after Fed signals it could cut interest rates if US trade conflicts slow economy
US stocks recorded their second best day of the year on Tuesday. The Dow closed up 512 points, or 2.1%. The S&P 500 ended 2.1% higher. The Nasdaq closed 2.7% higher, erasing its losses after a steep selloff on Monday driven by worries about tech regulation https://t.co/WahQuztSUw
Equity investors love cheap money, and U.S. stocks posted their best day in five months Tuesday as traders lifted themselves off the mat after Chair Powell suggested a willingness to lower interest rates if the economy slows in response to escalating tariffs.
The odds were doubtlessly in favour of rate cuts from the Fed in 2019 but overnight and ahead of the upcoming June FOMC meeting, Chair Powell changed the Fed messaging just enough to avoid signalling a shift from patient to panicked. And while falling well short of confirming the markets overly dovish expectations, it was music to U.S. investors ears who have been starved of positive news of late.
Read more: theguardian.com