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Bassanese Bites: Fed Focus – Week beginning: 17 June 2019

Global equities continued to shrug off concerns with regards to US-China trade wars last week, and instead were heartened by Trump’s Mexican deal, benign inflation data and growing hopes that the Fed will soon cut interest rates.  Equities edged higher and bond yields held at low levels.  Not even the attack on oil ships in a key trade passageway did much to upset markets.

This week the focus will be largely on the Fed, which meets on Wednesday.  While a rate cut is unlikely, traders will focus on any hints with regard to later rate cuts, given a move as early as July has now been fully priced by a hyped-up market.  I suspect the Fed will give markets at least partly what they want – signaling a rate cut is likely in coming months, though possibly not as early as July.

Also of interest this week will be several US manufacturing and service sector surveys, with traders on high alert for any clearer signs of a negative trade-war impact – if only so they can rejoice at an even greater chance of a near-term Fed rate cut.  As I’ve mentioned in recent weeks, we’re now in the upside down world where “bad news is good news”.

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