Macro economics

Analytics on 08/07/2019. Investors scale-back rate Fed cut expectations

Global investors continue to digest last Friday’s stronger-than-expected US jobs report which tempered expectations for a Federal Reserve rate cut. Despite a cut in July has been priced in already, some market participants now suppose the tightening will be less aggressive than they anticipated earlier. Also, Deutsche Bank is in focus now as the German lender announced that it would pull out of its global equities sales and trading operations, scale back its investment banking and slash thousands of jobs as part of a sweeping restructuring plan to improve profitability. After the initial rally, the bank’s stock turned negative and lost over 5%. Meanwhile, the US-China trade talks are set to resume this week but it doesn’t help the markets as recent optimism was replaced by caution and doubts in the possibility of striking a deal any time soon due to the lingering structural issues.

Against this backdrop, the UK’s FTSE 100 declines by 0.06 per cent to 7548, Italy’s FTSE MIB sheds 0.14 per cent to 21,954, France’s CAC 40 loses 0.30 percent to 5,576, while German DAX 30 is 0.37 per cent lower to 12,522. US stock index futures are edging marginally lower as investors scale-back rate cut expectations.

The dollar turned on the offensive again, after a limited pullback during the morning trading. The USD continues to react to the unexpectedly strong US jobs report though the impetus looks muted following an aggressive widespread rally late last week. In the coming days, market focus will shift to Chief Powell’s testimony before the Senate and the release of the FOMC minutes on Wednesday ahead of the inflation report due on Thursday. Should the central bank’s tone come not as dovish as expected, the greenback will receive another bullish boost but downside risks also persist.

EURUSD failed to climb back above 1.1235 and turned negative on the day, trading marginally above the 1.12. Should the USD demand persist in the short term, the pair could lose the psychological support and target fresh lows. Also on the negative side, Bank of France governor Francois Villeroy de Galhau became the latest ECB official to talk up the prospects of fresh stimulus in the region, saying the central bank was determined and ready to act. Meanwhile, mixed German industrial production data failed to affect the euro’s direction substantially.

In commodities, Brent crude registered six-day highs around $64.70 but lacks the directional impetus to challenge the $65 barrier amid some skepticism around the US-China trade talks and the lingering worries over the state of the global economy. However, the rising geopolitical tensions surrounding Iran could lift prices in the days to come after Trump has issued a warning to Tehran after the country moved to increase uranium enrichment beyond the purity threshold. Iran had warned it would increase enrichment following a 60-day ultimatum the country gave to the European signatories of the deal to ease sanctions on its banking and oil sectors.

Nathan Lambert, Head of Global FX Analytical Department

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Interest rates

Country Rate Value
USA Federal Funds 1.75 %
Switzerland 3 Month LIBOR Range -0,75 %
United Kingdom Repo Rate 0,75 %
EU Refinancing Tender 0,00 %
Japan Overnight Call Rate -0,10 %
New Zealand Official Cash Rate 1 %
Australia Cash Rate 0.75 %
Canada Overnight Rate Target 1,75 %
All rates

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