Published: Sat, July 20, 2019
Markets | By Otis Pena

Dow climbs higher as hopes grow for a bigger rate cut

Dow climbs higher as hopes grow for a bigger rate cut

Financial markets reacted quickly, with Fed fund rate futures at one point pricing in an nearly 70 per cent chance of a 50 basis point cut.

Futures on the S&P 500 rose 0.1% as of 9:05 a.m.in Tokyo. Regardless, investors were quick to ramp up bets for FOMC easing at this month's meeting, with some now eyeing up as much as a 50 basis point rate reduction.

In oil markets, crude advanced but was off earlier highs after climbing roughly 2% amid rising tensions between the United States and Iran after a senior Trump administration official said the US will destroy any Iranian drones that fly too close to its ships.

President Donald Trump attacked the independent US Federal Reserve on Friday (July 19), demanding the central bank reverse course and cut interest rates - something it is widely expected to do this month.

New York Fed President John Williams said on Thursday that policymakers need to add stimulus early to deal with too-low inflation when interest rates are near zero and can not wait for economic disaster to unfold, in a speech read as a strong argument in favor of quick action.

On Wall Street, major indexes moved higher in early trading, buoyed by a gain of 1.92% in Microsoft as quarterly results topped expectations, powered by its cloud business. But then a spokesperson clarified that Williams wasn't making any predictions about the Fed's monetary policy update due in two weeks.

After rate cuts by South Africa and Ukraine this week, Russian Federation and Turkey are expected to join the easing in the central and eastern European sphere, they added.

As of writing, Japan's Nikkei is up 1.65% or 365 points and the Shanghai Composite is adding 1.12% or 32 points.

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Despite Friday's advance, MSCI's index was poised to snap a six-week streak of gains.

European markets were mostly lower today, with the Spanish Ibex Index falling 0.7%, STOXX Europe 600 Index dropping 0.1% and German DAX 30 index gaining 0.1%.

Recent comments from Fed officials seemed to confirm the signal that policymakers are prepared to act to sustain USA growth in the face of a slowing global economy and persistent trade tensions with China.

The dollar index rose 0.33%, with the euro down 0.51% to $1.1217.

US Treasury yields were lower across the board in light of Williams' dovish views. The dollar fell to a three-week low at 107.210 yen.

The dovish Fed expectations are helping markets stay in the green despite tensions in the Middle East. The 2-year yield was at 1.7894 per cent after touching a two-week low of 1.7520 per cent.

In commodities, US crude oil futures reversed a large part of the previous day's deep losses, briefly rising 1.45 per cent to $56.10 per barrel before easing back to $55.81, up 0.9 per cent.

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