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Gold loses shine after Powell and Bullard temper July rate cut bets

Gold loses shine after Powell and Bullard temper July rate cut bets

US markets got a wakeup call from Fed officials yesterday after Fed chair Jay Powell reasserted the US central banks independence, as well as saying the Fed was in a no hurry to cut interest rates. He stated that while the outlook for had become more uncertain, the Fed would adopt a “wait and see” approach when it came to the data and would act as appropriate.

Voting member James Bullard, who called for a 25bp rate cut at the June meeting also poured cold water in the idea of a possible 50bp reduction at the July meeting, calling the size of such a move “overdone”

Some have suggested that Powell’s comments left the markets none the wiser as to whether the Fed will embark on a new easing cycle next month, but surely that’s entirely the point. The Fed needs some optionality on a July move.

Financial markets have become too used to getting their own way when it comes to easy money, and Powell’s stance last night was entirely sensible in terms of keeping the central banks options open. In essence investors, and certain politicians need to “grow a pair” to coin a crude aphorism. 

As a result Asia markets also slipped back, though the effect on US bond markets wasn’t that marked, with 2 year yields ending the day only marginally off their recent lows.

Gold prices had a much sharper reaction to the slightly less dovish tone, with a sharp thrust to the downside after posting six year highs yesterday.

Bitcoin, on the other hand has continued its recent surge, up another 11% as it looks to close in on the $13,000 level. The crypto currency is up over 200% year to date, and 50% this month alone.

European equity markets look set to pick up the slightly weaker tone, opening lower on the back of the weaker US and Asia sessions, having come off the back of three successive daily declines.

The Stagecoach share price dropped sharply yesterday ahead of its full year update, over concerns that the optimism from management earlier this year may well have been misplaced. This optimism prompted the company to revise its profit forecast higher, citing a strong performance from its rail and buses division. Both saw some decent growth, with busses showing a 3.4% rise.

This morning’s numbers would appear to show this optimism might have been misplaced, as revenues came in slightly below expectations at £1.9bn. Pre-tax profits came in at £132.9m slightly below estimates of £136.3m, but beating last year’s profits of £110.7m. More importantly net debt was cut by over a third, to £253.3m while the company kept guidance unchanged.  Initial trading has been choppy with the shares opening at their lowest levels since 2009, before rebounding into positive territory, and then slipping back again. Investors appear to be staging a tug of war around these ten year lows.   

Tullow Oil’s latest trading statement showed first half revenue of $900m while stating that a final investment decision on its Kenya project was expected to come in 2020, and not by the end of this year. It expects to see gross profits of $500m, when it posts its official numbers towards the end of next month.

International services group Bunzl also said it expected to see group revenue for the half year to rise 4%, while keeping its full year guidance unchanged, after growth slowed a touch in Q2, due to a bit of a slowdown in the US.

Ted Baker shares have taken another step lower after RBC downgraded the stock with a lower price target of 900p, down from 1900p, a step that was slightly overdue given recent events.

The US dollar has recovered a little bit of ground after three successive days of heavy declines on the back of last night’s comments from Powell and Bullard.

The New Zealand dollar has been the best performer today after the RBNZ left rates unchanged, but left the door open to a further cut in the headline rate in the coming months. Traders appear to have got slightly ahead of themselves in expecting a cut this month, and as a result we’ve seen the kiwi squeeze those short positions quite hard.

Oil prices have also built on yesterday’s gains jumping to their highest levels this month after US API crude stockpiles showed a bigger fall than expected over the past week. Despite record US production it would appear that demand is much more resilient than first thought. It does need to be remembered we are now approaching the peak of US driving season so you would expect demand to be high, given that US consumer confidence is still at fairly high levels, despite the fall seen in yesterday’s headline number.

US markets look set to open unchanged with Micron shares likely to be in focus after the chipmaker posted numbers that beat on revenues and profits last night.

Revenues came in at $4.79bn, above estimates of $4.69bn while profits came in at $1.05c, well above expectations of $0.79c.

Fedex, on the other hand, a key bellwether of the US and global economy warned of upcoming headwinds in the months ahead despite beating expectations for Q4 profits. Revenues also improved, coming in at $17.81bn.

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