[Chart courtesy of MarketWatch.com]
1. Moving the markets
While equity markets can’t get enough dovishness from the Fed, to keep the rally going, today we saw some disappointment kick in, as traders translated the Fed’s comments as too hawkish.
Fed chief Powell offered a “wait-and-see” posture on interest rates, which means that they prefer to continue monitoring the economy for signs of weakness, in order to avoid a knee-jerk reaction in terms of cutting interest rates. He also added that he won’t bow to political pressure.
If that wasn’t a rally killer, the St. Louis Fed head Bullard chimed in by opining that he is not in favor of a ½ point rate cut in July. Ouch! That hurt, because expectations had been 40% and subsequently collapsed to 16% before moving back up to 26%.
And the hits kept coming:
- Reuters reported that no broad trade deal was expected at the upcoming meeting and that talks could take months, years to complete.
- Consumer Confidence dropped to 2-year lows, New Home Sales crashed -7.8% in May to the weakest since 2018, which was a surprise as expectations saw a 1.6% MoM rise.
- The Case-Shiller Home Price Appreciation index showed a slowdown for the 13th straight month.
What was a surprise to me was the fact that the equity markets did not drop more than they did given that there was no positive news?
With the 0.5% expected July interest rate drop endangered at this time, ZH posted the question “if the Fed does not pay up and give in to the market’s demands, will the jaws of death snap shut?”(more…)