The US stocks went to the moon and back as the Federal Reserve (Fed) Governor Jerome Powell strongly hinted that an interest rate cut is imminent at his semiannual before the congress. The global economic slowdown outweighs the good data in the US, according to Powell. Also, the Fed’s chief thinks that the relationship between jobs and inflation weakened over time, meaning that a solid labour market would not necessarily mean a stronger inflation outlook. In other words, the fact that the US unemployment rate stands at a fifty-year low will not hold the Fed back from lowering the interest rates. With one remark though. The US core inflation rose from 2.0% to 2.1% y-o-y in June, even though the headline inflation eased from 1.8% to 1.6% y-o-y as expected by analysts.
The pricing of a potential 50-basis-point cut from the Fed in July eased from 25% to 17.5% according to the activity in US treasury markets following a higher-than-expected inflation read. The US 10-year yield recovered to 2.14%, a month high.
Higher US yields weighed on gold prices. An ounce of the yellow metal exchanged near the $1400 level but rebounded in Asia.
US June factory-gate prices are due today. A similar positive surprise may lead to a further correction in the US bond markets, but investors will keep in mind that an upturn in inflation, if not significant, will not influence the Fed’s dovish plans.
In the meantime, US President Donald Trump complained about China not boosting its purchases of US farm products as promised at the G20 meeting. Unhappy Trump brought the trade war back in focus, reminding investors that the year-old trade battle between the US and China is far from being over.
But neither the higher US inflation nor Trump’s complains about China not buying