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Wall Street’s benchmarks sag on dialled back Fed-cut expectations

  • The Nasdaq Composite Index dropped 60 points to 8,146.
  • The DJIA index ended down 68 points 27,154.
  • The S&P 500 index lost 18 points at 2,976.

Wall Street’s benchmarks were ending the session on Friday lower as counter reports to the prior day’s hype with respect of a 50 basis point rate cut from the Federal Reserve suggest that there will only be a 25 basis point rate cut. There were also headlines that Iran had seized a British-flagged oil tanker in the Strait of Hormuz which was not risk-friendly. Consequently, the Dow Jones Industrial Average, DJIA, ended down 68 points 27,154 and the S&P 500 index lost 18 points at 2,976. The Nasdaq Composite Index dropped 60 points to 8,146.

The Wall Street Journal dialled back expectations of a 50 basis point cut at the end of this month’s Federal Open Market Committee’s meeting as it reported that the Fed officials, based on recent public statements and interviews, signalled they were ready to cut rates by a quarter-percentage point. This sent the Fed-funds futures pricing in just a 22.5% chance of a half-point move, much lower than the 40% probability earlier in the day. US rates bear-flattened as a result with the front-end giving up most of its 5bp rally on the back of the William’s noise the prior day. Elsewhere, corporate earnings showed a better-than-expected result from  Microsoft Corp with solid growth in Azure and LinkedIn.

“Markets will be watching economic data next week as Fed speakers go into the blackout ahead of the July FOMC meeting. Geopolitics will also be closely watched over the weekend as tensions with Iran appear to be escalating,” analysts at TD Securities explained. 

DJIA levels

On a technical basis, the DJIA continues to consolidate, capped at recent record highs.  Below the 20-Day moving average at 26888,  the 23.6% retracement of the 3rd June low to 12th July recently printed high falls in at 26706 which meets April 23rd and 1st May double-top highs. Below there, we have the 23.6% retracement of the Dec 2018 to recent highs at 26056. the 38.2% fibo at 25226, below the 200-day moving average, comes in should the air b let out of the bubble on a disappointment from the Fed

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