By Samuel Potter
The morning after
Jerome Powell’s patience has run out, apparently. Possibly with President Donald Trump, with the central banker making clear he won’t be run out of town before his four-year term is up. More importantly for now, the Federal Reserve dropped a reference to being “patient” on rates and forecast a larger miss of their 2% inflation target this year in its statement on Wednesday. Alongside post-decision comments from Powell and a shift in the dot plot, it was basically about as dovish as they could go without a cut. And the markets were happy: U.S. stocks notched a third day of gains (the S&P 500 is closing on a record), yields slid (that of the 10-year Treasury dipped below 2%), and gold surged. Just about the only red out there is the dollar, so let’s hope this guy is in other currencies. As for what’s next, derivatives markets are now pricing in more than 25 basis points of easing at the Fed’s July gathering. Meanwhile, Powell may not be out of the woods when it comes to Trump. The president told confidants as recently as Wednesday that he believes he has the authority to replace Powell, though he doesn’t plan to right now. Perhaps he’s just being patient.
All eyes on England and Japan, not because of the women’s soccer World Cup yesterday, but because both countries set interest rates today. Post-post-Draghi, post-Powell, it’s somewhat of an anti-climax, but the Bank of Japan kept monetary policy unchanged as predicted and indicated it’s comfortable with the country’s 10-year bonds at the current level (a near-record high). Depending when you read this, the Bank of England may have already announced that rates remain unchanged as some officials vote for an increase. Outside of the monetary major league, Indonesian policy makers kept their benchmark rate unchanged for a seventh month but left the door open for future easing. The Philippines central bank kept its interest rate steady. Sick of all the doves? Head to Norway, where Norges Bank delivered its third interest-rate hike since September and signaled there’s more to come.
Iran said it shot down a U.S. drone in its airspace, escalating already fierce tensions in the Persian Gulf, a region supplying a third of the world’s oil that’s been on the brink of a military confrontation for weeks. Unsurprisingly, the crude price surged. The United Nations Security Council got a new report on the May tanker attacks, which concluded that a “state actor” was most likely behind the incidents. While even skeptics of Trump’s foreign policy are starting to agree the evidence is strong that Iran was behind similar episodes last week, they are still set to send the White House a message today over U.S. arm sales to Saudi Arabia. The Senate will vote on resolutions to halt such sales to various Middle Eastern countries.
The prospect of a new era of easy money continued to reverberate through global financial markets. The MSCI Asia Pacific Index rallied 1.2%, extending this week’s gains as Japan’s Topix finished 0.3% higher. The Stoxx Europe 600 Index rose 0.7% as of 6:03 a.m. Eastern time, with tech companies leading the advance. S&P futures pointed to a solid jump at the open and a test of the gauge’s all-time high, the yield on 10-year U.S. Treasuries fell to the lowest since November 2016 at 2.008%, and gold surged.
Slack Technologies Inc. is set to start trading on the New York Stock Exchange Thursday via a direct listing, the second large company to test the unusual method in the hope it can avoid the kind of turmoil seen in other big listings this year. U.K. Conservative MPs will have another leadership vote to whittle down the list of candidates once more. Data-wise, the U.S. current account balance, initial jobless data, and Philadelphia Fed business survey are all out at 8:30 a.m. Bloomberg’s consumer comfort and economic expectation readings are at 9:45 a.m.