By Lorcan Roche Kelly
Not so fast..
Markets have a July rate cut from the Federal Reserve as the base case following Chair Jerome Powell’s two-day testimony to Congress. Two regional Fed governors are pushing back, with Atlanta’s Raphael Bostic and Richmond’s Thomas Barkin disputing the need for stimulus right now. Each of them cited the Dallas Fed’s trimmed mean measure of inflation which has come in close to 2% in recent months. As neither of them are voting on the FOMC this year, their arguments could well get lost as Powell gets on with being the world’s central banker.
The fallout from the trade war is becoming clearer. Export-reliant Singapore’s gross domestic product unexpectedly shrank an annualized 3.4% in the second quarter, the biggest decline since 2012. China’s exports slowed more than forecast, and imports plunged 7.3% overall — down a whopping 31.4% with the U.S. The latter may reflect the lack of agricultural purchases. There were also warnings from Switzerland this morning on the damage being done to the country’s export sector.
OPEC and its allies agreed to extend production cuts into 2020 earlier this month, and already the International Energy Agency is saying that they may need to reduce production even more as the market has returned to surplus. The fall-off in global oil demand is only adding to the risks of another glut in the near future. Despite the warnings, crude is trading higher today, with a barrel of West Texas Intermediate for August delivery firmly over $60 as investors are more concerned about the immediate threat of a Barry-induced production shutdown and tensions in the Middle East.
Overnight, the MSCI Asia Pacific Index slipped 0.2% while Japan’s Topix index closed 0.2% lower as weaker-than-forecast earnings hit the electronics sector. In Europe, the Stoxx 600 Index was 0.2% higher at 5:45 a.m. Eastern Time with a rebound in mining and chemical shares leading the gain. S&P futures pointed to green at the open, the 10-year Treasury yield was at 2.141% and gold was higher.
It’s a quiet end to a busy week, with U.S. producer price inflation for June forecast to show a small decline when the number is published at 8:30 a.m. Federal Reserve Bank of Chicago President Charles Evans is the only monetary-policy speaker today. Already-busy watchers of the oil market have the Baker Hughes rig count at 1:00 p.m.