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FOMC Rate Cut Hopes Rise, ECB Leaves Rates Unchanged, Dovish Fed No Help For China

Thomas Hughes
FOMC rate cut hopes rise, the ECB holds rates steady but the outlook for stimulus grows, and central bankers around the world turn dovish.

The U.S. Futures Are Up On Rising Rate Cut Hopes

The U.S. futures are indicating a modestly higher open on Thursday morning. The indices are on the rise supported by FOMC rate cut hopes. The FOMC is scheduled to meet in two weeks and likely to indicate a rate cut is possible if not likely by the end of the year. This stance is in stark contrast to expectations last year that had called for up to four rate hikes this year. The move would be in support of the U.S. economy which is showing signs of weakening due to the ongoing trade war.

In trade news, President Trump says tariffs could be raised by $300 billion if China doesn’t come back to the table. Based on his past performance I take that to mean tariffs on Chinese goods are going up, he’s not sure when, but we better be ready. On the Mexican front trade talks ended on Wednesday with no deal in place. Trump Tweeted that progress had been made but not nearly enough. Talks are expected to continue today with the expectation tariffs will go into effect on Monday if a deal isn’t made.

In stock news, shares of AMD shot to the top of the charts after the company received an upgrade. The upgrade is to equal-weight from underweight, comes from Morgan Stanley, and includes a price target increase. The price target increase is substantial, to $28 from $17, and has the stock up 2.0% in early trading.

EU Rises On ECB Decision

The major EU indices are on the rise following the ECB policy decision. The ECB has left its policy rates unchanged but lowered its guidance. The bank now says it isn’t likely to raise rates until the middle of next year at the earliest, nine months later than previously indicated. The ECB President, Mario Draghi, is slated to retire this fall and many in the market believe he will do one more round of stimulus before he exits the office.

The UK FTSE 100 was leading at midday with a gain of 0.50%. The DAX and CAC were both close behind with gains near 0.45%. Shares of Renault, however, were the days biggest loser after some bad news hit the market. Fiat-Chrysler has pulled out of its proposed merger and shares fell more than -7.0%.

Chinese Equities Fall Despite Dovish FOMC Outlook

Chinese equities led Asian markets with a loss of -1.17% in Thursday’s session. The Chinese market is struggling for direction despite a round of dovish actions from the world’s central bankers. Not only has Jerome Powell indicated the FOMC is ready to act with rate cuts to “sustain the expansion”, other banks have acted as well. In the last two days, the RBA cut rates for the first time in three years and India cut its rate today for the third time this year. The BOJ is expected to stimulate the Japanese economy soon and there is a growing expectation the ECB will do the same.

Elsewhere in the region, indices were largely higher. The Japanese Nikkei was the only other to post a loss and that was only -0.01%. The Hang Seng advanced 0.26% while the Australian ASX gained 0.39%.

This article was originally posted on FX Empire

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