Thursday, 22 August 2019

Markets rise, “don't need” another rate cut

Markets were mostly higher on Wednesday.

The S&P 500 rose 0.8 percent and the STOXX Europe 600 rose 1.2 percent but the Nikkei 225 fell 0.3 percent.

The minutes of the Federal Reserve 30-31 July monetary policy meeting released on Wednesday showed that most Fed members who supported the rate cut agreed with Fed Chairman Jerome Powell’s assessment that it was a “mid-cycle adjustment” and thus not the start of an aggressive monetary easing campaign.

While traders are pricing in a near-certain interest rate cut during the Fed's September meeting, the curve between the 2-year Treasury yield and 10-year yield inverted briefly after the release of the minutes.

“Looks like the Fed is going to be stubborn, and the yield curve is starting to price that in,” noted Andy Brenner of National Alliance.

However, Jon Hill, rate strategist at BMO, said: “Cutting this early in the cycle before economic data turns could lead to excessive risk taking.”

Indeed, Bank of America Corp.’s CEO Brian Moynihan told CNBC that the US economy will keep growing.

“The U.S. consumer continues to spend and that will keep the U.S. economy in good shape,” he said.

Byron Wien, vice chairman of private wealth solutions at Blackstone, thinks similarly.

“This is a 70% consumer economy — and the consumer is spending; unemployment is low; wages are rising,” he told CNBC on Wednesday.

Wien added that the stock market also does not need another Fed rate cut.

“If you look at the market over the past week, stocks don’t need any help. They are roaring ahead, without the Fed doing anything,” Wien said.

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