When Doves Cry

The markets have priced in nearly two Fed cuts this year, based on worries over trade, slower economic growth and due to the inability of global central banks to raise inflation.  The market seized on comments from Fed chairman Powell which suggested that the Fed was prepared to cut rates if needed.

A few weeks ago the markets priced in a less than 1 in 3 chance of a rate cut at the September meeting.

Now the markets are pricing the probability of a cut in September is over 80%, and in addition close to 50% chance of a cut in the soon to be held July meeting.  Up from under 20%.

The global equities markets rallied on the back of the Fed news. (You can decide if this change in Fed expectations is positive for equities in the medium term).

Gold caught a bid on the back of the easier Fed expectations and traded from the $1275 level to the current $1330.

The USD traded weaker, but is still holding key levels.

Bond yields fell and have stabilized on the back of stronger equity markets the past couple of days.

So the key for the market today is the U.S. unemployment report.

The market expects:

              Nonfarm Payrolls  185,000   last report 263,000

              Unemployment rate  3.6%  last report 3.6%

The market considers unemployment a lagging indicator, but one has to wonder if the Fed can cut if the report comes in at the expected levels.

The ECB, RBA, RBI,PBOC, FED have all sent signals that can only be seen as dovish.

A weak number today would seem to seal the fate that we are headed for lower rates in the  U.S. *We at Minter are less dovish than the market and think the Fed can be patient.

As we are based in Norway, it seems that this country is the only one we can find that is still in a hiking mode.  We will learn more on what Norges Bank is thinking on June 20th at their interest rate meeting.  The risk is that although the domestic situation may warrant two more hikes in 2019. ( a hike on 20th is a high probability event)

The situation in Europe, trade issues etc,, may cause Norges Bank to revise their rate path lower.  We think they will remain unchanged on guidance, while awaiting more input from global developments.

Key levels to watch on close today:

Equities:                                                                                                    

DAX index  Support 11,945, 11,750  Resistance  12,101, 12,250          

S&P index  Support 2772, 2720  Resistance  2861*, 2880

Nasdaq index  Support 7,250, 7,164  Resistance  7,488*, 7,600

EU50 index  Support 3,300, 3,280  Resistance  3,395, 3,340

FX:

EURUSD:  Support 1.1185, 1,1105  Resistance  1,1310* ,1,1380

EURNOK:  Support  9,7680, 9,7350  Resistance  9,8300, 9,8600

AUDUSD:  Support  .6960, .6900  Resistance  .7035, .7079

NOKSEK:  Support  1.0780, 1.0750  Resistance  1.0905, 1.0952

Commodities:

Gold:  Support 1,298, 1,280  Resistance  1,340, 1,365

Brent Crude  Support 60.50, 58.90  Resistance  65.90, 67.50

Chart of the day:  Look for Brent to test 65 on technical picture.

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