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Mixed signals off July FOMC

A repeat of the ECB meeting with the Fed, in which a less dovish than expected communique was seen, had been the latest to take a hit upon markets.

Uncertainty of future Fed cuts

The two biggest takeaways from the latest Fed meeting conclusion had perhaps been a market baked with dovish expectations off the Fed and the Fed being largely uncertain in which direction rates will head going into year-end.

A 25-basis points rate cut had been undertaken by the Fed as expectedly from the latest July meeting. This comes alongside a contentious guidance. Fed chair Jerome Powell noted overnight that the first cut since the Fed’s last hike in 2018 had been to ‘insure against downside risks’ and the central bank is not at the beginning of a long series of cuts. With that, the significant disappointment had therefore reflected the shift of the market’s expectation for an insurance cut previously to the Fed embarking on the beginning of a rate cut cycle. According to the CME FedWatch tool, the market can now be seen pricing in only one more 25-basis points rate cut by end-2019 instead of two prior to the meeting. Notably, Fed Powell also did clarify that this does not equate to the Fed being done and dusted after one move. While it had helped Wall Street retrace some of its steep losses earlier, it had also suggested that the Fed is largely undetermined in their next steps.

Ultimately, the Fed is still expected to remain data driven. Any sustained impasse in trade tensions and softening of economic performance, seen likely into H2, would continue to feed into further rate cut expectations. Eyes on the US ISM manufacturing PMI and Friday’s labour market update that would be key for prices. The S&P 500 index can be seen edging slightly lower as the MACD exhibit a bearish divergence, one to watch for further pullback.

Source: IG Charts

Asia open

Following the drag from the jitters over US-China trade, Asia markets look to remain in a state of gloom for the second day son the back of the Fed disappointment. Early movers in the region including the likes of the ASX 200 and the Nikkei 225 were both seen in moderate red when last checked. Look to the rest of the region to trade softer with eyes on the Caixin manufacturing PMI due imminently. Bank of England will also meet in the day as the trend for greenback strengthening carries on into the Asia hours.

For the local STI, prices had similarly taken a turn for a downtrend, departing from the earlier consolidation zone. Support comes in at around 3276.

Source: IG Charts

Yesterday: S&P 500 -1.09%; DJIA -1.23%; DAX +0.34%; FTSE -0.78%

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. 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. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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