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Research Market strategy
by Swissquote Analysts
Morning News

Fed's Powell says trade worries restraining the economy, hints at interest-rate cuts soon

Topic of the day

Fed boss says bank will 'act as appropriate to sustain expansion' Federal Reserve Chairman Jerome Powell said the U.S. is suffering from a bout of uncertainty caused by trade tensions and weak global growth, but he pledged to do whatever it takes to shore up the economy in what Wall Street took as a sign the central bank will cut interest rates soon. In testimony before Congress , Powell said ongoing trade fights with China and other countries have contributed to slower growth at home and abroad and pose more risk to the U.S. economy. The Fed, for its part, is prepared to "act as appropriate to sustain the expansion," Powell reiterated, using a phrase that economists say points strongly to a rate cut at the bank's next meeting at the end of July. The Fed chairman appeared to downplay a rebound in consumer spending during the spring and a surge in hiring in June that eased worries after poor employment in May. Instead he emphasized trade tensions and slower growth around the world. "When asked what the Fed is looking at in determining whether to ease, the first thing he cited was weaker data in overseas economies," said chief economist Stephen Stanley of Amherst Pierpont Securities.

Swiss stocks

The SMI closed down 0.2 percent on 9,938 points Wednesday after scaling 10,000 points in trading. US Federal Reserve Chairman Jerome Powell had fired hopes of interest-rate cuts in his speech before the US House Financial Services Committee. But the gains soon crumbled, with observers noting Powell’s statements had also shown that the economic outlook had not improved in recent weeks. Credit Suisse rose 0.5 percent and UBS 0.8 percent as good French industrial production data and lack of interest in a new ten-year bund auction drove interest rates up. Watchmakers Swatch gained 0.3 percent and Richemont closed almost unchanged on news that China and the US had continued their trade talks at ministerial level Tuesday. Sika slid a further 0.7 percent on the profit warning of German chemical group BASF Monday, while Clariant recovered 0.2 percent. Reinsurer Swiss Re slid 2.5 percent with other European reinsurers, likely because of the start of the US hurricane season, traders said.

International markets

Europe

The pan-continental Stoxx Europe 600 fell 0.2% afternoon trade to extend Tuesday's losses, dragged down by food-and-beverage and media stocks. Benchmark indexes in France and Germany also posted modest declines. Banking stocks were among the region's best performers, with Germany's Deutsche Bank rallying 2.8% to recover some of its losses. Shares in the German lender dropped earlier in the week as investors reacted with skepticism to Chief Executive Christian Sewing's radical restructuring program. Data showed the British economy returned to growth in May, reversing a two-month slowdown and easing fears of a contraction in the second quarter. A 24% rise in car production drove the uptick, as auto makers restarted factories they had idled in anticipation of Brexit, which was originally scheduled to take place in April. However, analysts cautioned that the broader economic picture in the U.K. remains subdued, despite the improvement in manufacturing. Airbus rises after it reported it had delivered 389 planes in the first half, keeping it on track to meet full-year targets and setting it up to overtake Boeing as the world's No. 1 plane maker. Airbus shares up 0.6%.

United States

U.S. stocks leapt to records intraday after Federal Reserve Chairman Jerome Powell set the stage for the central bank to cut interest rates to bolster flagging growth. The S&P 500 and the Nasdaq Composite touched all-time highs, with the S&P briefly eclipsing the 3000 level for the first time. The indexes were up 0.6% and 0.9% in recent trading, respectively. The Dow Jones Industrial Average climbed 0.5%, on track to snap a three-day losing streak. The indexes extended gains Wednesday afternoon after the Fed released minutes from its June meeting, showing many central bank officials saw a stronger case for a rate cut. Traders have largely been treating good economic news as bad news while they wait on the Fed's decision. Gloomy economic data gives central bankers a reason to intervene to forestall a slowdown. The Fed released the minutes of its June meeting at 2 p.m. Federal-funds futures, used by investors to bet on central-bank policy, show a 29% chance that the Fed will cut rates by half a percentage point at its July 31 meeting, up from 3.3% yesterday. The odds of a quarter-point cut stand at about 71%.

Asia

Asian markets continued the momentum Thursday, while U.S. futures also ticked higher.

Bonds

U.S. Treasury yields came sharply off their highs on Wednesday as market participants said Federal Reserve Chairman Jerome Powell's prepared remarks for his semiannual testimony to Congress suggested the U.S. central bank would go forward with an interest rate-cut in July. The 10-year Treasury note yield was mostly unchanged at 2.054%, after trading at an intraday high of 2.112%. The 2-year note rate slipped 5.1 basis points to 1.854%, while the 30-year bond yield was up 1.9 basis points to 2.553%.

Analysis

CS lowers the BASF target to 67 (78) EUR – Outperform
UBS rises the Adecco target to 61 (57) CHF – Buy
CS lowers the Repsol target to 19 (20,50) EUR – Outperform


Produced by MBI Martin Brückner Infosource GmbH & Co. KG on behalf of Swissquote. All news is acquired with journalistic accuracy. No liability is assumed for delays or errors.

 
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