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The first Cup is the deepest.
Calling for a rate cut – the first of its decade in more than a decade – by the US Federal Reserve at some point this year is particularly hot.
A survey by the Wall Street Journal earlier this week indicated that nearly 40% of the economists (paywall) surveyed by the publication expected the US central bank to relax its monetary policy next month.
Chief economist Joe Davis of Vanguard, the fund provider who manages some $ 5.4 trillion worth of wealth, has speculated that a reduction in the "insurance rate" of Jerome Powell's Fed could arrive as early as Wednesday, at the end of the two-day balance sheet of the central bank. It starts June 18th. Futures on federal funds indicated a probability of 87% for a reduction in July and 26% for a relaxation this month, starting Friday night, according to data from the CME group.
But what will happen if Wall Street is wrong about the Fed's spending cuts, or even its intention to reduce benchmark rates, which currently range from 2.25% to 2.2% at future meetings?
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Kathy Bostjancic, chief US financial economist at Oxford Economics, told MarketWatch that the national economy has not weakened enough to warrant lower rates.
"The Fed may not be ready to confirm such validations as the figures do not yet indicate a marked slowdown in economic activity," she said.
The Labor Department's employment report, released in May, with only 75,000 jobs created over the months, versus 185,000 expected, is often cited as evidence of the formation of cracks in the economy, which should mark at the end of the month a record for the duration.
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However, other data were relatively healthy if they did not dazzle. A measure of retail activity revealed that persistent rumors about the disappearance of the US consumer are overestimated. US retail sales measured by the Commerce Department rose 0.5% in May, slightly below expectations (0.7%), while April sales were up 0.3% compared to the initial decline of 0.2%.
The University of Michigan Consumer Climate Index was 97.9 at the beginning of June, down from 100 after seasonal adjustment in May but slightly above the 97.3 estimate; the measure of industrial production rose 0.4% in May. six months, helped by the increase in the production of vans and cars.
These reports do not immediately require a reduction in the preventive rate, argue some strategists.
The data, however, pose a problem for the Fed, which has to push down rates, or even lower levels, to mitigate the effects of a protracted Sino-US trade dispute, even if the data remains relatively stable, At least for the moment. Certainly, business leaders believe that concerns about the trade war force them to rethink their business strategies.
All this opens the way to a possible disappointment for a market that yearns for rate cuts, betting that the trade frictions between the United States and China could lead to a more accommodating or accommodating stance on the part of US monetary policy, with a decline of 10 years. Treasure ticket
TMUBMUSD10Y, + 0.00%
closing at 2.093% on Friday, while the S & P 500
SPX, -0.16%
is just 2% of its record of April 30 and the Dow Jones Industrial Average
DJIA, -0.07%
about 2.8% of its peak on Oct. 3, while the Nasdaq Composite Indices
COMP -0.52%
was about 4.5% of its 52-week high. This is notable because the Nasdaq has slipped into the territory of the correction, generally defined as a 10% drop from a recent high, about two weeks ago.
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The fact that assets perceived as risky, such as equities, and bond prices, which move in the opposite direction of their returns, increase at the same time (and gold).
GCQ19, + 0.06%
flirts with a 14-month high), highlights the unusual and confusing situation for investors.
On top of that, inflation is stubbornly low, Univ. from Michigan, a survey showed that consumers were expecting an average annual inflation of 2.2% over the next five years, down from the expected 2.6% expected in May.
However, the Fed's preferred measures of inflation, personal consumption expenditure or PCE, rose 1.5% in April compared with the previous year and are consistently below the 2% annual inflation target set by Powell & Co., with the Wall Street Journal. pointing out that low inflation data are part of the combination of factors that may eventually lead to a reduction in the Fed's rate.
Thomas di Galoma, managing director and head of treasury operations at Seaport Global Holdings, told MarketWatch that bonds and equities, which have both rallied to expectations of rate cuts, could collapse.
"I think the Fed's message could be really disappointing as the 10-year rate has gone down 45 [basis points] In the last 30 days, the market could be preparing for a selloff, "he said.
In any case, Kristina Hooper, chief global markets strategist at Invesco, said the Fed's June meeting would be a crucial point in setting the tone for the markets.
"All eyes will be on this Fed meeting – especially the statement and the conspiracy," she said, referring to the rate expectations ploy of the members of the Federal Open Market Committee.
"In other words, this Fed meeting is very important because market expectations have become so accommodating recently," said Hooper. "And, with rising risks, many investors are recognizing that once again the Fed is facing a more challenging stock environment."
She said the Fed "will certainly want to see a move towards more transparency," adding, "I think markets are expecting at least to see the removal of the" patient "language from the Fed's statement. "
Invesco's strategist said that if the market does not get what it wants, pay attention!
"If they do not see a strong desire to go to more housing, they will probably express their disappointment at a sale of shares."
Mr. Di Galoma said: "In summary, the Fed must silence its message in the market and achieve some stability. Let's just say that they have a very difficult job at this point. "
Look to the front
Beyond the Fed's Decision at 2:00 pm An hour and a half later at Powell's press conference, investors are looking for some other data, including the launch of enterprise software company Slack Technologies.
On Monday
A reading of manufacturing conditions in the New York area, the Empire State Manufacturing Survey, will be released at 8:30 am, followed by the 10-hour housing market index.
Tuesday
A report on housing starts for May will be released Tuesday.
Thursday
Unemployment claims and prospects for the Philadelphia Fed at 8:30 am
Slack should debut in a direct listing on the New York Stock Exchange
Friday
A reading of existing home sales will be released at 10 am.
US Federal Reserve President Loretta Mester and Federal Governor Lael Brainard will deliver remarks during a community development and economic discussion. Cleveland at 12pm in Ohio.
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