Commercial War in China: Do not count on a rate reduction unless the situation really gets worse. Like the bad bear market

by



[ad_1]

President Donald Trump on Tuesday urged the Fed to match China's central bank by lowering rates. "It would be the finished game, we win!" Trump tweeted.
Monday's stock market chaos prompted investors to increase their chances of a rate cut. The likelihood of the Fed dropping its rates from here until the end of the year has climbed to around 70%, according to CME 's FedWatch tool. A month ago, it was only 31%.

"The markets are signaling that the United States and China have both fallen into a minefield," Nicholas Colas, co-founder of DataTrek Research, wrote in a note to his clients.

Although stocks rebounded somewhat on Tuesday, absolute tariffs are clouding the prospects for a short-term trade deal and threatening the global economy.

How much do stocks have to go?

However, the Fed may be reluctant to act unless the situation deteriorates badly.

According to a survey conducted by Bank of America Merrill Lynch with global fund managers, the S & P 500 is expected to collapse to 2,305 before the Fed cuts rates.
Why the trade war between the United States and China will not last

A drop in this level would be a real bear market, which would represent a 22% drop from the unprecedented high of the S & P 500. It would also be 19% below Tuesday's close.

In other words, do not count on the help of the Fed until investors have taken into account in a recession.

"I do not think the Fed is reacting unless there is a very big slowdown," said Mustafa Sagun, chief investment officer at Principal Global Equities, which manages more than $ 350 billion. "I see a low probability for a reduced rate this year."

Zero percent change of a rate hike

The futures market, however, says the opposite.

Investors see only a 30% chance that the Fed will maintain its course of action and maintain its stable interest rates in 2019, according to CME. And there is no chance that the Fed will increase its rates just once.

The Fed's president in Boston, Eric Rosengren, a voter on Fed policy, said he did not necessarily expect a rate cut. However, he left the door open for one.

"If the impact of tariffs – and whatever the reaction of the financial markets to these tariffs – causes further slowdown," said Rosengren to Reuters, "we have the tools at our disposal, including rates of interest." 39, lower interest ".

Esther George, an inflation hawk and president of the Kansas City Fed, acknowledged Tuesday that the battle over tariffs posed a threat to the otherwise solid US economy. But George has downplayed recent concerns regarding the deceleration of inflation.

"In the context of a growing economy and job gains, this does not require a political response from the Fed in my opinion," George said in a speech.
China does not consume a lot of American oil (for the moment). here's why

At the same time, investors, who expect other potential problems in the financial markets, cover their bets.

A record number of investors surveyed by Bank of America, 34%, said they should be removed from the protection against a sharp drop in equities over the next three months.

With the Fed probably on hold and the trade war in abeyance, taking out insurance makes perfect sense.

[ad_2]

Source link