Dovish monetary policy expectations
Wall Street’s surge had been one to inspire Asia markets going into the Thursday session while the watch continues for both trade tensions and monetary policy outlook.
Record high for the Dow
Alas, we have seen the Dow partaking the record breaking with a fresh all-time high printed following that done by counterparts including the S&P 500 index and the NASDAQ. Stocks had monetary policy expectations to count as reasons to support the overnight move. Nominations of dovish choices to the Fed board by President Donald Trump alongside that for the European Central Bank had equity markets cheering. While updates on trade muddle along with the latest report of US-China talk to resume this week, the markets may well have its focus on the Fed at present.
The near-term influence for the Fed, however, would remain with the data considering the expectations for the July move. Cleveland Fed President Loretta Mester had alluded to the potential for a rate cut to ‘reinforce negative sentiment about a deterioration in the outlook’ while emphasizing the importance of data. This was prior to the release of the private ADP employment report which had been a miss at 102k against the 140k consensus, altogether pointing towards the potential for Friday’s Nonfarm Payrolls to turn up on the weaker end. One to watch for the labour market to again reflect softness. The US will be away for the July 4 Independence Day holiday which could lead to a lack of clear leads though President Donald Trump is expected to be talking.
Currency manipulation accusations
Separately, President Donald Trump had once again taken to twitter to express his dissent on currency manipulation by China and Europe, although to little effects within the market. EUR/USD seen little changed at $1.1280 levels this morning just as the US dollar index continues flatlining. This latest reference adds pressure at a time with both US-China truce called and the US considering further tariffs on the EU. The good news is perhaps that the Fed is broadly expected to continue with their cut in the upcoming meeting that could work in President Trump’s favour, but the question will be on how things will evolve thereafter. As it is, the downtrend continues for the US dollar index as seen in the chart below and that is expected to sustain.
Source: IG Charts
Asia open
As told, Asia markets have the positive lead in the form of the Wall Street rally, underpinned by monetary policy expectations, boosting prices. A relatively quiet day lies ahead amid the lack of tier-1 releases in the session while the US will be away for the day that could make for thin trading. Updates on trade talks to resume as soon as next week according to White House economic Larry Kudlow does serve as a positive sign but would have little effect for a market weary on this issue.
Yesterday: S&P 500 +0.77%; DJIA +0.67%; DAX +0.71%; FTSE +0.66%
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