Futures Rise On Rate Cut Hopes, France Slaps Tariffs On U.S. Tech, Cross-Currents Have Reemerged

Global markets get a lift from Jerome Powell’s dovish stance. Rate cut hopes for July are reaffirmed.
Thomas Hughes

The U.S. Futures Are Up On Rate Cut Hopes

The U.S. futures are moving higher in early Thursday trading after Fed Chief Jerome Powell confirmed expectations for a July interest rate cut. Powell, in testimony to Congress, says U.S. business investment has slowed noticeably. According to him uncertainties surrounding global economic growth linger. Cross-currents related to trade, tariffs, and global business have reemerged. He and the FOMC stand ready to act as needed to sustain the economic recovery. While the NFP report last week has reduced the depth of the expected cut, Powell’s remarks have the odds for one hike at 100%+.

According to the CME’s FedWatch Tool, the odds of two hikes by December stand at 90%. This is down from earlier in the year when as many as three cuts were expected. Considering that the NFP and labor data does not point to slowing it is probable the odds for two hikes will dim once the first is enacted.

Today’s data does not support the idea of interest rate cuts. The CPI came in as expected at 0.1% for the month, 0.3% at the core level. The Consumer Price Index rose 1.6% YOY, the hottest gain in nearly two years, while core increased 2.1%. On the jobs front, initial claims fell -13,000 to 209,000. Claims are trending at long-term lows consistent with strong labor conditions.

European Markets Are Flat At Midday

The European markets are flat at midday following Jerome Powell’s dovish testimony. The DAX is down about -0.20% while the FTSE is closer to break-even and the CAC is showing a small gain. Oil and gas are in the lead with a gain of 1.2%, supported by tightening markets and the start of the U.S. hurricane season. Autos and Chemicals are the only sectors in the red.

In England, the results of the BOE financial stability report shows UK banks are well capitalized. The banks are expected strong enough to withstand a no-deal Brexit. The risk, the bank says, is global economic activity and the state of trade relations. In France, the Macron government has levied a 3% tax on the profits of U.S. tech giants. The move is meant to protect French tech companies from unfair advantage but drew the ire of Washington. Trump says the U.S. will investigate the merit of the tariffs, a move applauded by Amazon CEO Jeff Bezos.

Asian Markets Rise On Rate Cut Hopes

Asian markets are broadly higher in Thursday trading following Jerome Powell’s dovish comments. The Korean Kospi led the advance with a gain of 1.06%, the Hang Seng was a close second at 0.81%. The Shanghai Composite trailed the broader market with a gain of 0.08%.

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