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:
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
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
Gold: Support 1,298, 1,280 Resistance 1,340, 1,365
Brent Crude Support 60.50, 58.90 Resistance 65.90, 67.50