Monday, 19 August, 2019

Markets Right Now: Fed's low-rate stance sends stocks higher

Wall Street climbs on Apple, Boeing results; Fed decision eyed Fed to be "patient" with rate changes
Russell Knight | 31 January, 2019, 20:40

"In light of global economic and financial developments and muted inflation pressures, the committee will be patient" in determining future rate hikes, the Fed's rate-setting committee said in the policy statement.

In a separate release from its policy statement, the USA central bank also said while it was continuing its monthly balance sheet reduction, it was prepared to alter the pace "in light of economic and financial developments" in the future.

US stocks rallied after the announcement, Treasury yields fell and the dollar sank.

Since December's rate hike, Powell has struck a relatively dovish tone in recent interviews, saying that the central bank can be patient on future rate hikes as inflation remains relatively tame. But it removed language from its December policy statement that risks to the outlook were "roughly balanced".

Powell has been invoking the word "patient" to describe the Fed's latest approach to rates increases.

Federal Reserve Chairman Jerome Powell will have an opportunity to explain the central bank's thinking in a news conference due to begin at 1930 GMT.

"The back-drop of slowing economic growth on a global basis is the 800 trillion gorilla in the room", Pascualy said. Amid the crosscurrents of a strong US economy and some uncertainties overseas, a "common-sense" approach means the Fed will patiently await "greater clarity" and rely on economic data to guide policy, Powell said.

Unemployment figures not released by government: NITI Aayog VC Rajiv Kumar
On Wednesday, the Modi government had indicated that it will not release the NSSO report in its current form. But we need to look at the quality of jobs.

U.S. Government charges Huawei with stealing T-Mobile’s trade secrets
Prosecutors also claimed that Huawei sought to impede investigation on the matter by des‌troyi‌ng or concealing evidence. Numerous 23 charges relate to Huawei's alleged dealings with Iran, which is the subject of U.S. economic sanctions.

Stocks slide as slow growth in China weighs on earnings
Heating oil lost 2.9 percent, to $1.84 a gallon, and natural gas dropped 8.4 percent, to $2.91 per 1,000 cubic feet. Economic growth in Europe slowed in the last half of 2018 and indicators at the start of this year have been weak.

Crucially, it also said that the rundown of its balance sheet - or the stockpile of bonds it has accumulated over the past 10 years of quantitative easing - could slow too.

The Fed can lower its base interest rate, known as the federal funds rate, to help to stimulate the economy or raise it to stop it overheating.

"It's hard to read this as anything other than the Fed has capitulated to the market", said Michael Gapen, chief USA economist at Barclays Plc. Officials indicated they would probably hold on to more of those bonds - a plus for investors - and would not actively manage reserves in the banking system to influence rates. But in his press conference, Powell also denied the Fed's shift was in response to political factors, notably President Donald Trump's criticism of the central bank's rate increases and draining of liquidity from its balance-sheet shrinkage.

Even without a full flow of data, the Fed said household spending "has continued to grow strongly" while business investment growth had moderated since earlier in 2018.

The slight downgrade in the Fed's language around rate increases included a change in its description of economic growth from "strong" to "solid", and it noted that market-based measures of inflation compensation have "moved lower in recent months". There was no reference to the shutdown.

The Fed, in other words, is recognizing the havoc its tightening of policy was having on the financial markets.

"Any positive news from the US-China trade negotiations or a softening of the divisive rhetoric coming out of DC should also bolster share prices".

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