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There is a Bloomberg headline this morning which best summarizes the market mood on the day after Powell's 1st day of Congressional testimony: "Traders Take Fed Message as License to Buy Everything", and it's pretty much spot on, with S&P futures storming back over 3,000, following Asian stock higher amid certainty that the Fed will cut rates at least by 25-50bps in the immediate future, even as an early European rally fizzled as investors didn't get the memo, and grew skeptical by the relentless dovish flood. Meanwhile, Treasuries dropped and the dollar edged lower.
The S&P was set to open back over 3,000 as it briefly topped the key psychological level for the first time Wednesday after the Fed Chair made it abundantly clear he is willing to lower rates, citing a slowing global economy and trade issues. In his first day of testimony before Congress on Wednesday, Powell confirmed the U.S. economy was still under threat from disappointing factory activity, tame inflation and a simmering trade war, and said the Fed stood ready to “act as appropriate”.
June - US - Jobs - Report - Friday
A strong June U.S. jobs report last Friday heightened expectations the Fed was more likely to cut by 25 basis points than by 50. But Powell’s cautious stance helped fuel bets of two rate cuts at its next policy meeting on July 30-31, and the odds of a 50 bps cut rose to 27.6% from 3.3% on Tuesday, after minutes from the Fed’s last meeting showed many policymakers felt there was not yet a strong case for easing.
“Powell’s statement confirmed we are going in the direction of a cutting cycle,” said Charles Zerah, a fund manager at Carmignac. “The main question now is, are investors pricing too much in terms of rate cuts by year end? The way you see equity markets behaving, risk...
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