FOMC Recap Doves Play Catchup With Markets

FOMC Recap: Fed Doves Play Catchup With Markets

The Fed all but confirmed the U-turn that many were expecting. Whilst rates remained on hold, almost half of voting members now see two rate cuts this year.

Less than two months ago, the Fed were mostly united in saying the US economy was in good shape. Yet at this month’s meeting, the Fed dropped their pledge to be ‘patient’ with the next month and just under half of voting members now see two rate cut this year.

Trade disputes are the main culprit for this turnaround in a relatively short space of time. It had looked like US and China were on the path to resolving their issues, until negotiations unravelled in May and Washington unleashed a new set of tariffs.

Market Pricing:

At the time of writing, markets are now pricing in a 71.9% chance of a cut in July, up from 68.5% ahead of the meeting. It’s generally accepted that the Fed likes to see market pricing at or above the 70% threshold before making a change.
Expectations for a 2nd cut in September have risen to 62.4%, up from 50.6% ahead of the meeting.
The probability of a 3rd cut by December stands at 41.2%. We currently see this as an outside chance, so 41.2% could be ‘optimistically’ dovish.

Of course, these expectations will need to be confirmed by Fed action. Failure to do so could see a reversal of current trends, although action will also hinge around trade war developments as a surprise deal following the G20 could see the Fed return to a more neutral stance once more, and markets would have to adjust accordingly.

Market Reaction.

Yields fell with the US10Y testing 2% in early Asia, its lowest yield since November 2016 (as Trump was elected). The US2 year now yields just 1.73%, its lowest level since November 2017.
Equities moved higher and remain supported, although upside was fairly limited overall. DJIA and S&P500 only achieved a marginal new high before settling back inside the prior session’s high.
Gold broke out (and closed) above $1350 and now trades just shy of $1360, with an intraday high hitting its most bullish level since April 2018.

USD/JPY fell to an intraday low of -0.5%, finally settling around -0.35% by the end of the session. This maintains the bearish bias outlined on Tuesday with the resistance zone having performed its job and bearish momentum pointing lower once more. From here we’d expect traders to fade into minor rallies to target 107.51 but, if trade wars are to escalate further then we could be headed much lower.

USD/CHF plummeted 1% at one by and produced a bearish engulfing candle back below parity, finally settling -0.7% by close of play. It had struggled to make headway above parity and found resistance between 1.0000/16 before rolling over. Given the bearish momentum at this likely swing high, the path of least resistance appears to be lower and we’d expect to fade into intraday rallies to target the June low. A break beneath 0.9855 opens-up a run for the 2019 lows.

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.