DUBAI: Hopes of rate cut following a weak set of data from the United States are propelling US equities, and the sentiment may continue for now amid the continuing trade war between the United States and China.
On Friday, the Dow Jones Industrial Average closed 1 per cent higher at 25,983.94. The S&P 500 index closed 1.05 per cent higher at 2,873.34 after the US job growth slowed, fanning speculation of an interest-rate cut.
The Federal Reservechief Jerome Powell had said that they were prepared to act to sustain the economic expansion if President Trump’s trade war weakened the economy, a reversal from the earlier hawkish stance seen earlier in the year. The Fed next meets June 18-19 and July 30-31.
“With investors pricing in rate cuts from the Fed and other major central banks, yields have collapsed. The falling yields have helped to support higher-yielding stock markets. Given then fact stock markets rallied on the back of a poor US non-farm payrolls report and wages data, it looks like “bad news is good news (for stocks)” is back,” Fawad Razaqzada, Technical Analyst, FOREX.com said.
“It is likely that sentiment will again be dominated by rate cut expectations next week. Economists at a number investment banks have already revised their rate expectations lower, with Barclays, for example, seeing a 50 basis point cut in July. While we think that might be a little too dramatic, we also fully expect a couple of rate cuts from the Fed this year,” Razaqzada said,
The fed fund futures market shows traders see a 72 per cent chance of a rate cut at the Fed’s July 31 meeting, and an around 23 per cent probability of a rate cut in the June 19 meeting. The central bank’s policy rate currently stands between 2.25-2.50 per cent, according to reports.
The DJIA and S&P 500 index has now gained 11.3-14.6 per cent in the year so far.
“We maintain the view that global growth momentum is slowing and likely to worsen further before renewed policy panic from global central banks will help to stabilise the outlook. On that basis, we believe that gold will continue to act as a late-cycle hedge which eventually will see it challenge resistance,” Ole Hansen, head of commodity strategy at Saxo Bank said.
On Friday, gold prices jumped more than a per cent to their highest levels since April 2018. Comex gold for front month closed flat at $1,34, reversing from an intra-day high of $1,352.70. Gold has underperformed equities with only 4.5 per cent gains since January 1.