Upcoming stock market week: the markets think the Fed will lower its rates. Here is what it means

Thinking: Easier monetary policy will help increase borrowing, make corporate profits profitable, and possibly free up more money for share buybacks. But committing to the Fed also involves risks.

The Federal Reserve has more room for maneuver, but its benchmark – currently set between 2.25% and 2.5% – also leaves little room for maneuver.

Cabana thinks that because the Fed has less space to act dramatically, it will quickly lower its rates.

"They know that they have little ammunition, that's why they have to get ahead," he said.

But it's far from being a settled debate. Others expect the central bank to move methodically and at regular intervals, knowing that there is little room for error. In fact, nobody really knows it.

"We have never been in this scenario before," Cabana said.

Another disadvantage is that bond markets anticipate multiple short-term rate cuts from the Fed, according to Belski. Bond yields are already falling, which could reduce the stimulus for rate cuts.

"If the Fed provides exactly what the market expects, it will not have any economic impact," Cabana said. "The market has already cooked that, and the costs of mortgages and borrowings are already lower."

Not everyone agrees that rate cuts are a fact of life. In a note on Friday, PNC Chief Economist Gus Faucher said he thought the Fed would keep interest rates when it would meet later this month. this. He could start cutting later in the year if the June jobs are also low, he added.

A big question is whether the problem is that the actions seem to be dissociated from the economic fundamentals. The divergence between equities and bond yields implies that a correction could be considered.

"I'm happy to inform you that the United States of America has an agreement with Mexico," Trump tweeted on Friday. "The tariffs to be applied by the United States on Monday against Mexico are suspended for an indefinite period."

Customs duties, which would have started at 5% and could have risen to 25%, have been opposed by many members of the presidential party and freight transport companies on both sides of the border.

Markets could gather at news. But the psychological impact of the skirmish may persist.

"The auto industry may have dodged the bullet with it, but it does not come out completely unscathed," said Ivan Drury, senior director of sectoral analysis at Edmunds. "In many ways, this situation highlights how difficult international production can be under the current administration."

On the radar: What OPEC is saying about the forces that drive down prices, as well as any overview of the supply by country.

Oil plunged into a bear market last week due to concerns over oversupply and slowing economic growth.

4. Coming next week: