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The calm before the storm of the Fed? Dow advances higher at the beginning of an eventful week



the Dow (UNDUE) closed 0.1%, or 23 points, higher. the S & P 500 (SPX) and the Nasdaq Composite (COMP) finished 0.1% and 0.6%, respectively.
The day started with negative news on the stocks. The Empire State manufacturing study did not meet expectations and contracted in June. Economists expected the manufacturing industry in New York to grow. According to the New York Fed, the decline in the economic index was the largest ever recorded.

"This is the worst impression since October 2016," said Peter Boockvar, chief investment officer at Bleakley Advisory Group. "It's hard not to think that everything is a question of tariffs and the impact on business confidence."

Even the threat of tariffs was enough to sow fear in the companies, he added. Capital expenditures in the Empire State Survey have fallen accordingly, indicating that companies are skeptical about investments.

Fed

Wednesday's Fed meeting will be at the center of investors' concerns. No change in interest rates is expected, but investors will follow President Jerome Powell's press conference looking for clues on what steps to take.

Two weeks ago, Powell said the central bank would act appropriately to support US economic growth. The markets understood that this meant that a reduction in interest rates was imminent. Expectations for a reduction in July are about 86%, up from 83% earlier today, according to the WEC 's FedWatch tool.

By signaling that rate cuts are imminent, Powell could add more fuel to this fire, which would likely increase inventory. But if he says nothing about rate cuts, or if he reports that the Fed will maintain its rates, the shares could sell. Anyway, stocks could be volatile on Wednesday, so maybe we should be grateful for a good start to the week.

The global trade war

"There is still a great deal of uncertainty about when and how the Fed will cut interest rates because of the meeting between Trump and Xi at next week's G20 meeting," he said. wrote Craig Erlam, Senior Market Analyst at Oanda.

President Donald Trump and Chinese Prime Minister Xi Jinping are ready to meet on the sidelines of the G20 summit in Japan next week. Trump said China would immediately face new tariffs if Xi did not show up.

"The trade war between the two largest economies in the world has created enormous uncertainty and has weighed on the outlook, forcing the Fed to suspend the tightening cycle and consider easing conditions," Erlam wrote.

Until now, trade between the United States and China is no end.

Although the United States has reached an agreement with Mexico that avoids import duties on Mexican products, India has imposed long-awaited tariffs on US imports in response to the levies on the United States. 39, steel and aluminum imposed by Washington last year.

Customs duties retaliated by up to 70% affected 28 products sold from the United States to India, including apples, almonds, lentils and chemicals.

"These retaliatory measures show the vulnerability of the high-pressure strategy characterized by current US trade policy," said Timme Spakman, economist at ING.

Negotiations will not be as easy as with Mexico, continued Spakman, which increases the risk of escalating conflicts.


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