Breaking News
0

Fed's Powell resists pressure for hefty rate cut, sends global stocks down

Stock MarketsJun 26, 2019 05:08AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: Federal Reserve Chairman Jerome Powell speaks at the Council on Foreign Relations in New York

By Virginia Furness

LONDON (Reuters) - Global stocks fell while the dollar rose on Wednesday as comments from U.S. Federal Reserve dampened excitement about an aggressive rate cut as early as July from the world's most important central bank.

Fed Chairman Jerome Powell and St. Louis Federal Reserve Bank President James Bullard on Tuesday pushed back on market expectations and presidential pressure for a significant U.S. interest rate cut of half a percentage point as soon as its next meeting.

Powell said the central bank is "insulated from short-term political pressures". But he said he and his colleagues are currently grappling with whether uncertainties around U.S. tariffs, Washington's conflict with trading partners and tame inflation require a rate cut.

The pan-European STOXX 600 index fell 0.3% to its lowest level in a week, while Germany's Dax was down 0.15%.

The MSCI world equity index, which tracks shares in 47 countries, was down 0.16%, while U.S. futures indicated a flat to lower open.

The dollar rebounded and gold prices retreated after Powell's comments which pulled the dollar up from three-month lows against a basket of other currencies in the previous session at 95.843. It was up 0.1% at 96.273.

Equity markets have rallied this month in anticipation that Fed policymakers would cut rates, but Powell's remarks cast doubt on those expectations when he referred to the Fed's independence.

According to latest data from CME Group's FedWatch program, federal funds futures implied that traders now see a 27% chance of the Fed lowering rates by half a percentage point in July, compared to 42% on Monday.

However, not all see the comments as evidence of a policy u-turn. Richard Dias, multi asset strategist at Pictet Asset Management, said the Fed had effectively backed itself into a corner, making a cut in July or September highly likely.

"They are in a weird dichotomy, so many cuts are priced in and the market has rallied on this news and the bond market has rallied so if they don't deliver what they have telegraphed, their credibility will be impinged," he said, adding that he expected a cut of 25 basis points.

"They would never do 50 bps, we are not in a recession," he said.

A modest sell-off in U.S. Treasuries, which often sets the tone for other major bond markets, failed to have much of a spill over into the euro zone. Ten-year Treasuries fell to 1.98% on Tuesday, before rising to above 2% on Wednesday.

European bond yields remained pinned to all-time lows, unmoved by the apparent shift in tone from the Fed. Germany's 10-year benchmark bond yield held around -0.32%.

And with the seemingly insatiable bid for bonds continuing, Austria opened books on a 100-year bond, a tap of its existing September 2117.

Market hopes are also pinned on progress in an ongoing trade dispute between the United States and China.

The U.S. hopes to re-launch trade talks with Beijing after Trump and his Chinese counterpart Xi Jinping meet in Japan during the G20 summit on Saturday but Washington will not accept any conditions on tariffs, a senior administration official said on Tuesday.

Pictet's Dias said he did not expect an immediate resolution.

"Everyone is desperate for a deal, but why would they do it then? It is a lot more than just trade, trade is a red herring, what matters is technology and I don't know how we are going to agree on this," he said. "What incentive does Donald Trump have to do a deal now anyway, it is better to drag it out until before the election and show a big win."

Gold pulled back from the almost six-year highs hit on Tuesday amid escalating tensions between the U.S. and Iran, slipping more than 1% on Wednesday.

The New Zealand dollar edged higher after the Reserve Bank of New Zealand (RBNZ) stood pat on monetary policy, keeping rates at a record low 1.50%. But the kiwi's gains were limited as the central bank expressed concern towards economic risks at home and abroad.

"Overall, today's announcement provides a strengthened signal that another cut is coming, most likely soon, unless there is a marked improvement in the global outlook," wrote economists at HSBC.

The kiwi last traded 0.2% higher at $0.6651.

U.S. crude oil futures advanced roughly 2% to touch a four-week high of $59.10 per barrel after data showed a decline in U.S. crude stocks.

Fed's Powell resists pressure for hefty rate cut, sends global stocks down
 

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments
Hank Williams
Hank Williams Jun 26, 2019 5:56PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Looks as though we are on a tight rope. Fall one way and we get a short term pop in stocks and fall the other way and commodity prices with higher wages bring on inflation. What happens after you kick the can down the road with the short term pop in stocks. Oops.
Tom OKray
Tom OKray Jun 26, 2019 7:08AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Make sense what he said the economic indicators are still to mixed to dictate any rate movement. Good job.
Antonio Velardo
Antonio Velardo Jun 26, 2019 5:15AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Powell is pretending to show his indipendente from Trump pressure. But , unlike Draghi, he is making a mistake to not seriously consider the adverse conditions of the global economy.
Al Vlaj
alvlaj Jun 26, 2019 5:15AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
I agree with you here, but i more blame the president for putting the Fed in this spot. Independence is paramount. If Trump would just calm down and keep his trap shut, they would have cut by now (i believe). Optics are very important here.
Antonio Velardo
Antonio Velardo Jun 26, 2019 5:15AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Agreed.
Hei Leopold
Hei Leopold Jun 26, 2019 2:12AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
The FED is way behind the curve. Waiting too long makes the situation worse by the day and it has to lower much more aggressive later.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email