Stocks edge higher again
Stock markets are edging higher again on Wednesday, although gains are far more modest than the rebound we saw a day earlier after Fed Chair Jerome Powell opened the door to a rate cut.
While Powell’s comments weren’t quite as dovish as Bullard’s a day earlier and didn’t suggest any change was imminent, they quite clearly intentionally didn’t dispel the suggestion that a rate cut is on the horizon either. As far as traders are concerned, that’s clearly as good as a confirmation, although June is still viewed as a long shot with markets pricing in only an 18% chance of a cut.
It may be the case that 19th June is viewed as coming too soon but that could change if we get a bad jobs report on Friday, something that may justify the case for a cut in the eyes of some policy makers. Ultimately, the trade war remains the greatest risk factor in many people’s eyes though which makes the G20 meeting all the more important, not to mention how the data performs in the interim.
I’m sure views would change if talks between Trump and Xi this month are positive and the data holds up but as ever, there’s a lot of if’s and buts in there. The Fed will likely want to hold off as long as possible to avoid talk of policy mistakes in December, when they rather oddly decided to raise interest rates for a fourth time in 12 months, rather than hold off during a period of significant instability in the markets.
Gold surges again as dollar breaks key support
The dollar didn’t soften as much as you may expect to the Powell comments, consider just how much of a bump they gave to equity markets, but it has continued to edge lower today. The greenback was trading around a potentially important support level when the comments were made which may explain the reluctance but we are below here now so the resistance didn’t last long.
This has propelled gold higher today as it broke beyond the March high before running into resistance again just shy of the 2019 peak, around $1,340. There’s no shortage of resistance just above here as well, should it break, with much longer term resistance being seen around $1,360-1,370. Momentum is already starting to fade as we approach these levels which may suggest they could at least trigger some profit taking and a correction after such a strong surge.
PMIs offer slight reprieve for battered currencies
We’re seeing small gains in the euro and pound early in European trade, after a batch of PMI reports offered some minor good news. The reports for the UK and euro area pointed to slight improvements in the services sector – particularly important for UK – and exceeded expectations. Unfortunately, the trend is still very much against both so the numbers won’t really change the perception that they’re experiencing a slowdown with little sign of improvement.
An underperforming greenback and improved risk appetite though means both currencies are trading a little higher today, with the euro the slight outperformer. Both currencies have been under pressure for some time, the pound considerably so over the last month after the UK failed to leave the EU in March which then ultimately led to the resignation of Prime Minister May. With the prospect of a harder Brexit now more real, as various Brexiteers put themselves forward for the top job – one of which is currently the strong favourite – the pound may remain under pressure for a while.