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By CCN: Dow Jones futures announced Tuesday a three-digit early-session recovery as the market took a more accommodative federal reserve policy.
Traders are now waiting for a series of interest rate cuts at the Fed as early as the month of July. A billionaire investor said the Fed could even reduce the funds rate to zero over the next 18 months.
The change of dovish is a response to the alarm bells of the recession and to the detrimental effects of the US-China trade war.
Dow Futures is fighting for a three-digit rally
The Dow Jones Industrial Average (DJIA) is expected to open in positive territory on Tuesday, DJIA futures rising by 142 points (0.57%) to 6:25.
Dow Jones futures jumped early Tuesday with traders forecasting higher interest rate cuts. Source: Yahoo Finance
The S & P 500's futures contracts followed the same pattern, rising by 14.75 points (0.54%) to 2,764. After a sell-off in Monday's trading session, Nasdaq futures also announced a strong opening, as futures contracts rose 45.25 points (0.65%) to 7,039.
It marks an impressive recovery as Asian markets fell overnight.
The Fed rate reduces to zero in 18 months?
As reported by CCN, traders are now predicting a 68% chance of a rate cut in July. This represents only 20% last month.
The likelihood of a reduction in interest rates to the Federal Reserve rose to 68.1% in June. Source: New York Times / CMC Markets
"The market is more and more convinced that the Fed will cut. The only question is when and to what extent? "- Mark Cabana, Bank of America Corp.
The wealth manager of a billionaire, Stan Druckenmiller, sees the Fed acting even faster. In an interview with Bloomberg, he sees a future where the Fed will reduce the fund rate to zero in the next 18 months, unless the economic data improves.
Dow Jones: a miserable month of May
Traders are rethinking the probability of rate cuts after a month of paralyzing losses on the Dow Jones. Wall Street screams warnings of recession and trade talks with China have completely collapsed. Treasury yields have also fallen as investors lose confidence in the economy.
The Dow Jones collapsed in May, breaking a string of consecutive four-month wins. Source: Yahoo Finance
The easing of the federal funds rate is one of the weapons that the Fed can use to stimulate the US economy. Historically, rate cuts have helped support the Dow Jones by giving businesses access to cheaper loans. As CCN pointed out, easing monetary policy would reduce the risk of total stock market collapse.
The St. Louis Fed President James Boullard, who holds the voting rights in the Federal Open Market Committee, said a rate cut would be needed "soon" to counter the adverse effects of the commercial war.
No end in sight for the trade war
Druckenmiller confirmed his zero-rate forecast with a pessimistic analysis of the trade war. He added that it was unlikely Trump would retreat before the 2020 elections. The tariff threat is playing too well with his base and he will need this weapon to fight for re-election.
As a sign of deteriorating relations, China warned its citizens this morning not to visit the United States. Citing shootings, robberies and harassment of foreigners, China warned those who worked, studied or went to the United States.
Fears of a trade war hit the market in May, but the promise of a reduction in interest rates could give the market much needed optimism. Fed Chairman Jerome Powell is due to speak in Chicago today and could give further clues.
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