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Bharat Gohri
USA and China trade war concept with american flag and china flag.

US Equities Bouncing After Yesterday’s Tumble

Equity markets in the United States were weighed by less dovish than expected Fed rhetoric on Tuesday. Fed member Powell reiterated his stance that the bank will adjust as necessary to keep the recovery going. There was some expectation for him to signal a cut in July, but he did not do so.

Perhaps the more relevant speech came from Fed member Bullard who is a known dove. Bullard had dissented at the Fed meeting last week, opting to cut rates instead. He commented yesterday that a 50 basis point rate cut would be excessive. Ahead of the speeches, the markets had been fully pricing in a cut next month. They had also priced in a 42% probability of a 50 basis point cut.

With Bullards comments, the likelihood of a 50 basis point cut seems quite slim, considering he is the most dovish voting Fed member. The S&P 500 declined about 1% yesterday to a 4-day low.

There seems to be much more optimism in the markets today as the futures are up about a fifth of a percent at the time of writing. The origin is from an interview conducted by CNBC with Treasury Secretary Steven Mnuchin. When asked about progress in the trade war, and whether a deal could be made by the end of the year, Mnuchin commented that he could not speculate on that. He added that the US was previously about 90% of the way to reaching a deal and that he thought “there is a path to complete this”. He added that he wanted China to come to the table in hopes of coming to a resolution.

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Gold Prices Pull Back to End a Six-Day Winning Streak

The price of gold dropped in early day trading today towards $1400 after reaching a high of $1439 yesterday. Gold prices have been weighed by a bounce in the dollar and the slight shift in rate cut expectations since yesterday’s Fed speeches.

Treasury yields were mostly unchanged with the 10-year yield hovering just above 2%. The yield has been consolidating within a tight range since late last week. Oil prices extended gains to trade about 0.4% higher at the time of writing. WTI Crude oil faces important technical resistance from an intersection of the 100 and 200-day moving averages.

European Markets Gained While Some Asian Markets Struggled

In Europe, the German DAX is leading the indices at mid-day. The index had a soft open but rallied in early day trading to wipe out much of the week’s loss prior to settling a bit lower.

The Japanese Nikkei 225 extended losses earlier today by half a percent. The Nikkei dropped to a one-week low and has erased last weeks gains. The index was weighed by a weaker yen as USD/JPY sprung higher in Asian trading. The exchange rate hit a low below the 107 handle earlier this week but appears to be poised to test the 108 handle which is an important price point for the pair.

New Zealand’s NZX 50 traded mostly unchanged on the day after the RBNZ kept rates unchanged today. The Reserve Bank of New Zealand was expected to leave the interest rate at 1.5% but some economist had thought they might cut further today. Analysts at New Zealand Bank ANZ expect that policymakers will ease in August.

The article was written by Bharat Gohri, Director of Sales and Retention at easymarkets.com

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