Nothing is keeping traders more jittery than Powell’s congressional testimony tonight, in which markets anticipate more clues of the Federal Reserve’s next move.
Although the Fed chair is expected to maintain a consistent tone from the previous Fed meeting, even a nuance deviation of his words could potentially lead to heightened market volatility.
Powell is facing a tough moment; trying to strike a balance between providing policy support to a slowing economy while defending the central bank’s independence in the wake of criticism from President Trump. A clear guidance on an interest rate cut in July seemed to have been too early based on unemployment rates, inflation and the recent jobs report. However, it is perhaps too little too late for the equity and bond markets, as they have fully priced that in!
The central bank might be trying to fix a cyclical slowdown in some parts of the economy, specifically manufacturing and trades with monetary tools. This could be a mismatch as the underlying problem comes from external demand and radical trade policy. Interest rate cuts might give equity markets another boost, and lead more capital to flow into real estate and bonds but whether it would bring back jobs in the manufacturing sector is a question to be answered.
In today’s agenda, China CPI, PPI, M2 and new yuan loans data are set to be released by 10:00 Singapore time. CPI is expected to remain unchanged while the PPI reading is forecasted to decline further as manufacturing activities slow. M2 and new yuan loans may see a rebound from the previous months.
The US-China trade talk has likely stalled since the signing of the agreement by both leaders to re-open talks at the G20 meeting. There is no clear progress in the negotiation and new deadlock has formed since China demands the counterparty to remove all tariffs in place before any form of deal can be reached.
Asian markets opened broadly higher following a positive swing back in US equities last night. The sustainability of this rally will largely depend on Powell’s speech tonight and the upcoming earnings season starting next week.
Tonight’s DoE crude oil inventory report is important to oil traders and markets are foreseeing another weekly slump in the US crude stockpile. A reduction in inventory is positive to crude oil prices whereas an increase will likely lead to the reverse
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