The Federal Reserve Chairman, Jerome Powell, has a news conference after the Federal Market Market Committee Federal Market Committee meeting two days in Washington, July 31, 2019.
Sarah Silbiger | Reuters
The Federal Reserve is expected to reduce interest rates by the fourth quarter of Wednesday, but what it says about its future plans will determine whether stocks will continue at the highest level.
Determination of this month's rates meeting is high. Some members do not believe that the economy is weak enough to cut rates required before the members who do not believe the economy is weak enough as opposed to Fed Chairman Jerome Powell. Two members opposed the final rate charged, and more could ever oppose this one.
The FED is also under pressure from the financial markets that wore concern earlier this summer on the anxiety that the Fed was slowly taking to recession. In addition, there has been unprecedented criticism by the Fed from the White House, and President Donald Trump criticizing the Fed board several times and Powell, himself, for not cutting interest rates quickly. This week, the president went as far as he called “bone officers” Fed officials and claimed that they take the rate of fed funds to zero or even a negative level.
Against this backdrop, the stock market is meeting new highlights, as the Fed progresses with other central banks to mitigate the policy, given the global economic slowdown. Stocks higher for the week and Friday were trading less than one per cent under July highlights in Dow and S&P 500. The Dow completed the week 1.6% higher at 27,219, while S&P 500 was up by 1% at 3,007, 21 points away from all the time.
The market was enhanced by signals that could progress in trade negotiations between the US and China, as each side of a number of new tariffs stood, before formal talks in October.
"It's good news all over the markets this week. You have a trade tension. The central bank has more compensation, and you have Goldilocks' economic details. Investors are delighted … and that's why you have markets below all the high-time, "said Michael Arone, key investment strategies at State Street Global Advisors.
Riding on the diet
The Fed stands for markets unless it cancels an easier commitment. The FED could do so in the quarterly projection of interest rate forecasts, which will issue with its economic projections after the meeting. Fed officials include forecasts of growth and inflation, rather than interest rates, which are reflected in a chart called the "dot plot."
"The question is that the FED will show that they are willing to continue with rate cuts, or will indicate that the mid-cycle adjustment is coming to an end. In my opinion they are not going back to a corner. , and they are going to give them enough space to cut again at some point, "Arone said. "This is now the biggest risk. The markets are pricing in some rate reductions in the next quarter and the FED will be delivering on that … That will be a friction point."
The US data last week is better than expected, with August retail sales up 0.4%, continuing a stronger trend, behind improved car sales. However, the problem for nutrition could result from both producer and consumer level inflation in August, with the main CPI reaching 2.4%, the growth speed year on year highest since 2008. t This is much higher than the FED's 2% target, but the Fed prefers to view PCE inflation, which is going around 1.6%.
Next week's calendar is Monday at Empire State manufacturing; Tuesday's industrial production; housing starts on Wednesday, and the current home sales and Philadelphia Fed survey Thursday. But the FED will change more with markets.
"We think they will succeed 25 [basis points]. We estimate that it will split evenly between half of the committee looking for one cut and the rest seeking no action, "said Kevin Cummins, senior economist at NatWest Markets., To 2.00 to 2.25% in July.
Some strategies say they disagree more, the more it would increase market volatility, since the FED view is much more insecure if Fed officials are not supporting policy actions in a more uniform way.
Cummins said that he hopes that the Fed's post-meeting statement would show a softer economic activity in July, and it is likely that he will point out that the labor market could be “solid”, rather than “strong” and that gains of jobs are modified. .
"This leaves the door open for more." [rate cuts]. The plot shows another cut dot by the end of the year. You could make the case that they will pause in October if things remain the same, "he said, and they reiterated that they could start again in December.
There are far quieter markets in front of the diet than in August, when trading tension with a trump tweet threatened more tariffs on China. Stocks are rising as bond yields come from August lows, and traders are now pricing in 25 cut points this week and another this year and another next year.
As the results of the Treasury were recorded and in multi-year years in August, the futures market price was as high as three reductions in subsistence rates for its year-end. Since then the result is 10 years, the other price moves over, after return to 1.90% – is more than 45 low base points.
The largest weekly transfer from November 2016 is the transfer of over 30 basis points in the 10-year result in the past week.
Market trading developments could move next week, just as they had in the past week. The analyst says the market is most vulnerable if there is a negative surprise. A Trump tweet on trade in August 1, a threat to more tariffs on China, created a new upset in markets.
"It is very similar. Without the US trade conflict, the Fed would not be cutting rates at all, and yet Trump President continues to cut rates," Arone said.
Arone said that the market driver is really the biggest driver of the market, and said the markets could be too optimistic about trade dealings.
"There is a fundamental risk for the markets if the tension is increasing again," he said.
What to Watch
Empire State Manufacturing 8:30
Nutrition begins a two day meeting
8:30 survey business leaders
9:15 industrial production
9:15 a.m. Use of means
10:00 a.m. NAHB Survey
4:00 p.m. Data TIC
8:30 a.m. Housing starts
2:00 p.m. Dietary decision
2:30 p.m. A press conference by Fed's Powell
8:30 initial claims
8:30 Philadelphia manufacturing survey
8:30 a.m. Current account
10:00 a.m. Current home sales
10:00 a.m. Leadership index
11:20. Boston Fed President Eric Rosengren at the Stern Business School conference
2:00 p.m. Dallas Fed President Robert Kaplan at a Community Forum hosted by the Federal Reserve Bank
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