Wall Street hits records with hopes of rate cuts

7-9-19 Business For Breakfast
July 9, 2019
FTSE 100 preview: Footsie to track US and Asia lower
July 9, 2019

Wall Street hits records with hopes of rate cuts

The three major Wall Street indexes broke records on Wednesday, as markets focused their attention on a Central Bank rate cut they believe they have made. The leading index, the Dow Jones Industrial Average, ended up 0.67%, at 26,966.00 points, the Nasdaq took 0.75%, to 8,170.23 points, and the broad index S & P 500 has advanced by 0.77% to 2,995.82 points, all three at historically high levels at the end of this session cut short by the celebrations of July 4 in the United States. Far from euphoria, the session was marked at the opening by the publication of US economic statistics rather gloomy. Job creation in the private sector rebounded in June, but less than analysts expected. For its part, the trade deficit rebounded strongly in May, driven by record imports in the automotive sector and a record deficit with Mexico. A little later on Wednesday, the growth of activity in services in the United States showed signs of abating in June, the lowest in two years. Not enough to discourage investors who have seen in these figures what to hope.

Credit

To combat the disappointing US statistics that have accumulated in recent weeks, “the market has focused on the fact that the Central Bank (Fed) will adopt an accommodating tone at its next meeting,” said Peter Cardillo of Spartan Capital.

The members of this institution will meet on July 30 and 31, and it is almost certain in the eyes of the markets that they will lower the rates by at least a quarter of a point.

Rate cuts are still welcomed on Wall Street because they suggest more oil in the workings of the US economy through a lower cost of credit for households and businesses.

In addition to the disappointing economic indicators that are multiplying, annual inflation has slowed in May to 1.5% according to the PCE index released last weekend, moving away from the target of 2% of the Fed. But the Central Bank had at its meeting in June opened the door to a decline in the cost of credit especially if the sluggish inflation was confirmed, which seems to be the case.

The economic indicators of the day have also contributed to sharply lowering the interest rate on the US ten-year debt, which had changed to 1.98% at 18:00 GMT, the lowest since the end of 2016.

This rate is generally perceived as a reflection of expectations of growth and inflation in the United States and it often falls when these prospects are gloomy because many investors want to acquire this asset deemed safe.

The Fed has also been talking about it for other reasons: US President Donald Trump on Tuesday proposed two new candidates as governors of the Central Bank, having failed in the spring to name two faithful.

“We can expect them to adopt an equally accommodating tone,” given Donald Trump’s fierce desire to see lower interest rates in the future, Cardillo said.

The US president accuses the president of the institution Jerome Powell, yet appointed by him, to clamp down on the economy through too high rates. Donald Trump is very frequently in the institution of lowering rates to support the world’s largest economy, which is showing signs of slowing down as it has recorded the longest period of expansion in its history.

This market focus on the Fed comes after brokers spent the last two sessions focused on the interpretation of a truce in Beijing and Washington in their fierce trade war.

In today’s day’s values, Tesla took 4.61%. The maker of electric cars, worn by Elon Musk, delivered a record number of cars in the second quarter in a car market rather down in the United States between January and June.

Symantec’s cyber security company surged 13.57% after Bloomberg news about a potential acquisition by Broadcom, which lost 3.54%.