The SPX equity index broke through the psychological handle of 3,000 for the first time in its history on Wednesday before Jerome Powell actually delivered his testimony, during the first day of his two-day appearance in front of the finance committee panel up on Capitol Hill. In a deliberately leaked part of his statement and delivery both Powell and the Fed voiced their commitment to lower the base rate in the short to medium term, should the USA economy reveal any signs of weakness.
He voiced concerns over global trade
and stressed the Fed would not be influenced by recent encouraging economic
metrics for the USA. The previous market consensus for rate rises during the
final half of 2019 which had developed after last Friday’s bullish NFP jobs
number, was immediately reversed. The minutes of the FOMC meeting held in June
also committed and contributed to the current dovish outlook.
Regional Federal Reserve Chairs voiced
concerns that uncertainties and downside risks to the outlook for the U.S.
economy had increased significantly when they gathered in June, strengthening
the case for possible interest-rate cuts. “Many judged additional monetary
policy accommodation would be warranted in the near term should these recent
developments prove to be sustained and continue to weigh on the economic
outlook,’’ according to the minutes of the June 18-19th Federal Open Market
Committee meeting released in Washington.
At 20:45pm U.K. time SPX traded up
0.39% with the NASDAQ up 0.73%. Both indices reached intraday and all time
highs as did the DJIA. The various indices’ gains came at the expense of the
U.S. dollar which sold off sharply after registering significant gains over
recent trading sessions. By 20:50pm both USD/CHF and USD/JPY traded down circa
-0.37%, crashing through the third level of support. The dollar index DXY
traded down -0.38% at 97.12. WTI rose significantly as USA oil inventories
reduced dramatically according to DOE data. Price traded up 4.31% breaching R3
and breaking up through the $60 a barrel handle for the first session since
late May.
Due to the sell off experienced by USD
any corresponding and correlated rises in the euro and sterling versus their
peers on Wednesday, have to be taken in context of the dollar’s fall. Economic
and market sentiment for the U.K. was improved after the latest GDP figures
published by the ONS indicated that growth had accelerated over recent months.
The May figure came in at 0.3% propelling the three month growth to 0.3%.
Despite the bullish statistics analysts and traders remained mostly unimpressed
based on leading data from sources such as IHS Markit, the FTSE 100 closed down
-0.08%.
GBP/USD rose by 0.30% to crawl above
the 1.250 handle, rising through the first level of resistance, R1, and
breaking an eleven day losing streak. Sterling fell versus both JPY and CHF as
Japan’s yen and the Swiss franc experienced haven appeal as U.S. dollar
strength faded. The euro registered gains versus several peers during Wednesday’s
sessions, at 21:30pm U.K. time EUR/USD traded up 0.41% as price traded in a
wide bullish daily trend, breaching the third level of resistance. EUR/GBP
traded up 0.08% whilst EUR/CHF traded close to flat as did EUR/JPY.
Thursday’s significant economic
calendar events includes the latest CPI readings for both Germany and the USA.
Both metrics are forecast to come in at 1.6%. For the USA if the figure does
fall from 1.8% to 1.6% with May’s reading coming in at 0.00%, it offers up more
justification and latitude for the Fed and FOMC to lower the USA key interest
rate during the final half of 2019.
