Euro Little Changed After German Retail Sales

Following the release of German retail sales for June at 2:00 am ET Wednesday, the euro changed little against its major rivals.

The euro was trading at 121.11 against the yen, 1.1061 against the franc, 0.9174 against the pound and 1.1156 against the greenback around 2:02 am ET.

The material has been provided by InstaForex Company - www.instaforex.com

source http://www.mt5.com/forex_news/quickview/2140699/

*Germany Jun Retail Sales Up 3.5% On Month, Consensus +0.5%

Germany Jun Retail Sales Up 3.5% On Month, Consensus +0.5%

The material has been provided by InstaForex Company - www.instaforex.com

source http://www.mt5.com/forex_news/quickview/2140698/

US Dollar, Stock Markets Brace for FOMC Rate Decision

The US Dollar may gain at the expense of equity markets if the Fed rate decision and accompanying commentary induces risk aversion, overriding downward pressure from a dovish policy change.
Via DailyFX - Forex Market News https://ift.tt/1QzwL0U

USDCAD Rate Carves Lower Highs and Lows Ahead of Fed Rate Decision

USDCAD initiates a fresh series of lower highs and lows, with the exchange rate at risk for a further decline as the Federal Reserve is expected to deliver a rate cut.
Via DailyFX - Forex Market News https://ift.tt/1QzwL0U

*Germany Jun Retail Sales Fall 1.6% On Year, Consensus +0.6%

Germany Jun Retail Sales Fall 1.6% On Year, Consensus +0.6%

The material has been provided by InstaForex Company - www.instaforex.com

source http://www.mt5.com/forex_news/quickview/2140696/

Euro Mixed Ahead Of German Retail Sales

German retail sales for June are due at 2:00 am ET Wednesday. Economists forecast retail sales to grow 0.6 percent on year in June, slower than the 4 percent increase in May.

The euro traded mixed against its major rivals ahead of the data. While the euro rose against the greenback and the franc, it was steady against the yen. Against the pound, it declined.

The euro was worth 121.10 against the yen, 1.1061 against the franc, 0.9173 against the pound and 1.1157 against the greenback at 1:55 am ET.

The material has been provided by InstaForex Company - www.instaforex.com

source http://www.mt5.com/forex_news/quickview/2140695/

European Economics Preview: Eurozone GDP Data Due

Quarterly national accounts, flash inflation and unemployment figures from the euro area are due on Wednesday, headlining a busy day for the European economic news.

At 2.00 am ET, the Nationwide Building Society is slated to issue UK house price data for July. Economists forecast house prices to rise 0.1 percent annually after climbing 0.5 percent in June.

In the meantime, retail sales and unemployment reports are due from Germany. Economists forecast retail sales to grow 0.6 percent on year in June, slower than the 4 percent increase in May.

At 2.45 am ET, France's Insee releases flash inflation data for July. Inflation is expected to remain unchanged at 1.2 percent.

At 3.00 am ET, GDP from Spain and foreign trade from Turkey are due.

At 3.55 am ET, the Federal Labor Agency is scheduled to issue Germany's unemployment figures. The jobless rate is seen unchanged at 5 percent in July.

At 4.00 am ET, Italy's unemployment figures are due. The jobless rate is expected to rise slightly to 10 percent in June from 9.9 percent in May.

At 5.00 am ET, Eurostat publishes Eurozone GDP, inflation and unemployment figures for the second quarter. The economy is forecast to grow 0.2 percent on quarter, slower than the 0.4 percent expansion in the first quarter.

Flash inflation is expected to ease slightly to 1.1 percent in July from 1.2 percent in June. Economists forecast euro area jobless rate to remain unchanged at 7.5 percent in June.

At 6.00 am ET, Italy's Istat releases GDP data for the second quarter. GDP is expected to drop 0.1 percent on quarter, reversing a 0.1 percent rise in the first quarter.

The material has been provided by InstaForex Company - www.instaforex.com

source http://www.mt5.com/forex_news/quickview/2140694/

*Japan Jul Consumer Confidence 37.8 Vs. 38.7 In Jun, Consensus 38.5

Japan Jul Consumer Confidence 37.8 Vs. 38.7 In Jun, Consensus 38.5

The material has been provided by InstaForex Company - www.instaforex.com

source http://www.mt5.com/forex_news/quickview/2140693/

*Japan Jun Construction Orders Down 4.2% Vs. -16.9% In May

Japan Jun Construction Orders Down 4.2% Vs. -16.9% In May

The material has been provided by InstaForex Company - www.instaforex.com

source http://www.mt5.com/forex_news/quickview/2140692/

*Japan Jun Annualized Housing Starts 922K Vs. 900K In May

Japan Jun Annualized Housing Starts 922K Vs. 900K In May

The material has been provided by InstaForex Company - www.instaforex.com

source http://www.mt5.com/forex_news/quickview/2140691/

*Estonia Jun Industrial Production Down 6.0% On Month

Estonia Jun Industrial Production Down 6.0% On Month

The material has been provided by InstaForex Company - www.instaforex.com

source http://www.mt5.com/forex_news/quickview/2140690/

*Japan Jun Housing Starts Up 0.3% On Year, Consensus -2.2%

Japan Jun Housing Starts Up 0.3% On Year, Consensus -2.2%

The material has been provided by InstaForex Company - www.instaforex.com

source http://www.mt5.com/forex_news/quickview/2140688/

*Estonia Jun Industrial Production Down 4.0% On Year

Estonia Jun Industrial Production Down 4.0% On Year

The material has been provided by InstaForex Company - www.instaforex.com

source http://www.mt5.com/forex_news/quickview/2140689/

Malaysia Producer Prices Fall Further

Malaysia's producer price inflation fell further in June, figures from the Department of Statistics showed on Wednesday.

The producer price index declined 1.8 percent year-on-year in June, following a 1.5 percent drop in May.

Among sectors, prices of agriculture, forestry and fishing dropped 9.2 percent and mining fell by 6.4 percent. Prices of water supply and manufacturing decreased by 1.8 percent and 0.8 percent, respectively.

While, electricity and gas supply prices increased by 1.8 percent.

On a month-on-month basis, producer prices declined 0.9 percent in June, after a 0.2 percent rise in the preceding month.

The material has been provided by InstaForex Company - www.instaforex.com

source http://www.mt5.com/forex_news/quickview/2140687/

UK GfK Consumer Sentiment Improves In July

UK consumer confidence improved in July, survey data from the market research group GfK showed Wednesday.

The consumer sentiment index rose to -11 in July from -13 in June. The reading was expected to remain unchanged at -13.

Among components, the index measuring changes in personal finances during the last 12 months increased by two points this month to +1. The forecast for personal finances over the next 12 months increased five points to +7.

Assessment of past economic situation remained unchanged in July, as the indicator held steady at -32. At the same time, expectations for the general economic situation for the coming year gained one point to -32.

The major purchase index advanced six points to +4 in July. Pre-Brexit consumers are marginally more bullish this month, Joe Staton, client strategy director at GfK, said.

"However, the coming months to the October 31st departure date will test the strength of this confidence," Staton added.

The material has been provided by InstaForex Company - www.instaforex.com

source http://www.mt5.com/forex_news/quickview/2140686/

Australia Inflation Rises More Than Expected

Australia's consumer price inflation rose at a faster-than-expected rate in the second quarter on higher fuel prices, data from the Australian Bureau of Statistics showed on Wednesday.

On a quarterly basis, consumer prices gained 0.6 percent in June quarter, after remaining unchanged in the preceding quarter. Economists had expected a 0.5 percent increase.

Prices in automotive fuel rose by 10.2 percent and those of international holiday travel and accommodation rose by 2.7 percent. Prices of medical and hospital services and tobacco grew by 2.6 percent and 2.4 percent, respectively.

The consumer price index rose 1.6 percent year-on-year in second quarter, following a 1.3 percent increase in the previous quarter. Economists had expected a 1.5 percent rise.

A report from the Reserve Bank of Australia showed that private sector credit gained 0.1 percent on month in June, the same pace of increase as seen in May. Annually, the growth in private sector credit slowed to 3.3 percent from 3.6 percent.

The material has been provided by InstaForex Company - www.instaforex.com

source http://www.mt5.com/forex_news/quickview/2140685/

UK Shop Prices Fall In July: BRC

UK shop prices decreased in July due to the weakness in non-food prices, data from the British Retail Consortium showed Wednesday.

Shop prices fell 0.1 percent for the second straight month. Food prices advanced 1.7 percent, while non-food prices decreased 1.2 percent.

"While we expect food inflation to remain steady over the next few months as retailers work hard to keep prices low, this will depend on whether the UK can navigate an agreement with the EU to ensure frictionless tariff-free trade continues after October 31st," Helen Dickinson, chief executive at BRC, said.

The material has been provided by InstaForex Company - www.instaforex.com

source http://www.mt5.com/forex_news/quickview/2140684/

*Malaysia Jun Producer Prices -0.9% On Month Vs. +0.2% In May

Malaysia Jun Producer Prices -0.9% On Month Vs. +0.2% In May

The material has been provided by InstaForex Company - www.instaforex.com

source http://www.mt5.com/forex_news/quickview/2140683/

*Malaysia Jun Producer Prices -1.8% On Year Vs. -1.5% In May

Malaysia Jun Producer Prices -1.8% On Year Vs. -1.5% In May



source

Gold Prices May Fall as the Fed Falls Short of Dovish Market Hopes

Gold prices may fall – making good on technical clues pointing to topping – as the Federal Reserve shies away from endorsing the markets’ ultra-dovish policy outlook.
Via DailyFX - Forex Market News 

China Manufacturing PMI Climbs To 49.7 In July

The manufacturing sector in China continued to contract in July, albeit at a slower pace, the latest survey from the National Bureau of Statistics showed on Wednesday with a manufacturing PMI score of 49.7.

That's up from 49.4 in June, although it remains beneath the boom-or-bust line of 50 that separates expansion from contraction.

The bureau also said its non-manufacturing index fell to 53.7 from 54.2 in June.

The composite index came in with a score of 53.1, up marginally from 53.0 in the previous month.

The material has been provided by InstaForex Company - www.instaforex.com

source http://www.mt5.com/forex_news/quickview/2140681/

*China Manufacturing PMI 49.7 In July; Non-Manufacturing PMI 53.7

China Manufacturing PMI 49.7 In July; Non-Manufacturing PMI 53.7

source

South Korea Industrial Output Gains 0.2% In June

Industrial output in South Korea rose a seasonally adjusted 0.2 percent on month in June, Statistics Korea said on Wednesday - following the 1.3 percent decline in May.
On a yearly basis, industrial production sank 2.9 percent after rising 0.2 percent in the previous month.
The index of all industry production was down 0.7 percent on month and 1.1 percent on year.
The Manufacturing Production Index rose 0.2 percent on month but fell 3.1 percent on year. The Manufacturing Shipment Index climbed 1.4 percent on month but dropped 2.7 percent on year. The Manufacturing Inventory Index fell 0.9 percent on month but gained 6.1 percent on year.
The Production Capacity Index in June eased 0.1 percent on month and 1.6 percent on year. The Index of Capacity Utilization Rate was flat on month but skidded 2.4 percent on year.
The Manufacturing Average Capacity Utilization Rate in June was 71.9 percent, which showed no change from the previous month. The Index of Services lost 1.0 percent on month but added 0.1 percent on year.
The Retail Sales Index dropped 1.6 percent on month but gained 1.2 percent on year. The Equipment Investment Index rose 0.4 percent on month but tumbled 9.3 percent on year.
The Domestic Machinery Shipment Index plunged 10.7 percent on year, while the value of Domestic Machinery Orders Received shed 5.8 percent on year.
The value of construction completed at constant prices lost 0.4 percent on month and 6.3 percent on year, while the value of construction orders received at current prices skidded 7.5 percent on year.
The Composite Coincident Index in June showed no change from the previous month. The Cyclical Component of Composite Coincident Index, which reflects current economic situations, eased 0.1 points from the previous month.
The Composite Leading Index gained 0.1 percent on month. The Cyclical Component of Composite Leading Index, which predicts the turning point in business cycle, fell 0.2 points from the previous month.

source

South Korea Industrial Production Adds 0.2% In June

Industrial production in South Korea was up a seasonally adjusted 0.2 percent on month in June, Statistics Korea said on Wednesday - following the 1.3 percent decline in May.
On a yearly basis, industrial production sank 2.9 percent after rising 0.2 percent in the previous month.

The index of all industry production was down 0.7 percent on month and 1.1 percent on year.
The Manufacturing Production Index in June rose 0.2 percent from the previous month but fell 3.1 percent from the same period of the previous year.

source

Iran's Strategic Next Move - Check The Effects On The Global Market - Commodities Performing Well

Vladimir Putin & Ayatollah Khamenei In Talks

IRAN is ready to team up with Vladimir Putin’s Russia if Western powers press ahead with plans for an international safeguarding force to police the Strait of Hormuz, the Islamic republic’s naval chief has said - creating the potential for a catastrophic flash point in the volatile region.

London and Tehran are currently at loggerheads after last week’s seizure by the Iranian Revolutionary Guard of the Stena Impero, a UK-flagged oil tanker. The vessel has been taken to the Iranian port of Bandar Abbas, with outgoing Foreign Secretary Jeremy Hunt describing the situation as “unacceptable”, while floating the idea of a team up involving other European powers patrolling the waters.

Meanwhile, the US has called on the UK, France and Germany to join it in an international coalition aimed at preventing any repeat of the Stena Impero incident.

However, Iranian naval commander Rear Admiral Hossein Khanzadi today responded by saying he had signed a document strengthening ties with Russia.

Mr Khanzadi said agreement meant the two nations would be conducting joint drills in precisely the stretch of way Western nations are looking to patrol.

He told the semi-official Fars News Agency the memorandum of understanding, which chiefly involves the naval forces of the two nations, “may be considered as a turning point in relations of Tehran in Moscow”.

The news came on the same day Mr Khanzadi visited St Petersburg to celebrate Russia’s Navy Day.

Announcing “joint Russian-Iranian exercises in the Indian Ocean are expected to take place soon”, he added: “When we talk about the Indian Ocean, perhaps the most significant part of the area is the northern Indian Ocean, which flows into the Gulf of Oman, the Strait of Hormuz and also the Persian Gulf.”

US President Donald Trump’s decision to pull his country out of the Joint Comprehensive Plan of Action (JCPOA) aimed at preventing the Islamic republic from developing nuclear weapons, and the consequent imposition of sanctions on exports of Iranian oil, have increased tensions between Tehran and the West in recent years.

The seizure of the Stena Impero was preceded by a separate attempt to board the British Heritage oil tanker, with HMS Montrose warning three gunboats off - although Iran has vehemently denied any involvement.

In light of the deteriorating situation, a spokeswoman for the US Embassy in Berlin said: “We have formally asked Germany to help along with France and the UK to secure the Strait of Hormuz and to fight Iranian aggression.”

However, speaking during a meeting with Omani Foreign Minister Yusuf bin Alawi bin Abdullah, Iran’s President Hassan Rouhani said on Sunday “the presence of foreign forces will not contribute to the security of the region, but will be a major cause of tension”.

Mr Abdullah’s ministry confirmed he had “discussed several issues, including bilateral relations, peace in the region and the need to maintain the security and safety of international navigation in the Gulf”.

Iran and Russia previously coordinated militarily in a joint campaign to prop up the regime of Syrian President Bashar al-Assad.

Moscow has called on Tehran not to enrich uranium beyond limits outlined in the JCPOA deal, though it has blamed the withdrawal of the US for Iran’s decision to do so.

Writing in the Saudi Gazette, MP Daniel Kawczynski, a member of the House of Commons’s All-Party Group on Saudi Arabia warned Britain could not afford to ignore the situation.

He said: “The crisis in the Arabian Gulf with Iran seizing a British registered tanker stems not from a tit for tat measure of us impounding an Iranian ship off the coast of Gibraltar, rather it goes back much further than that.

“We have turned a blind eye to Iran’s malign actions throughout the Middle East for so many years that it has given them the green light to completely ignore international laws and the world-based order and do as they please.

“We have seen Iran sending troops and weapons to top up the Assad regime of Syria which has brutalized its own population.

“If we instead seek the support of our American partners in a more robust approach through sanctions, we will finally make the Mullahs in Tehran realize that this behavior is unacceptable.”

source

Brexit Update - Why is GBP Falling So Hard & GBP Forecasts In Trouble

Boris Johnson - Newly Appointed Prime Minister Of The UK

Boris Johnson's Game Changing Tactics For GBP.

If you want to know why GBP has posted significant losses over the past 2 weeks you might want to question the UK's new leadership - Newly appointed Prime Minister of the UK Boris Johnson.

The prime minister has said it is "up to the EU, this is their call" if the UK leaves the EU without a deal.

Boris Johnson made his first visit to Wales as PM on Tuesday, seeking support from farmers for his Brexit plans.

He held talks with Wales' First Minister Mark Drakeford, who said there was a "deeply concerning lack of detail" from the new prime minister.

Mr Johnson said: "We're not aiming for a no-deal Brexit, we don't think that's where we'll end up."

"This is very much up to our friends and partners across the channel," he added.

A Welsh farmer called on Mr Johnson to stop "playing Russian roulette" with the lamb industry over the threat of a no-deal Brexit.

It followed the Farmers' Union of Wales president warning of "civil unrest" in rural areas if no agreement is struck.

Earlier, the prime minister had his first phone call with Irish leader Leo Varadkar since taking office.

The visit to Wales came as the Conservatives fight to hold Brecon and Radnorshire in a by-election on Thursday.

Mr Johnson visited a chicken farm in St Brides Wentlooge, near Newport, before travelling to online retailer BVG Group in Brecon.

He later attended a meeting in the Welsh Assembly with Mark Drakeford, where he was booed by a group of protesters on arrival.

In a news conference afterwards, Mr Drakeford said they had an "engaged discussion" on Brexit.

The Welsh Labour leader said he pressed Mr Johnson to explain the path to a deal with the EU but did not get a "clear sense" from him of what the plan would be.

Mr Drakeford said he emphasised the "catastrophic effect" a no-deal Brexit would have on the Welsh economy, and said the PM provided assurances of support for manufacturing and agriculture in such a scenario.

"But asked to describe the nature of that support, I'm afraid that there is a deeply concerning lack of detail that is available to people whose livelihood is on the line", Mr Drakeford said.

The first minister said the PM told him there would be many new opportunities for Welsh agriculture and businesses, but he had "no sense again" there was detailed thinking behind what "otherwise becomes vacuous optimism".

Mr Drakeford said he warned Mr Johnson "the future of the UK is more at risk today than at any other point in his political lifetime", and said he had put ideas to him on how the Union could be "reinvented".

A Downing Street spokeswoman said the two spoke about the importance of the union and support for farmers in Wales.

She added: "The PM set out how the UK will be leaving the EU on October 31st, come what may, and said he would seek to work with the Welsh Government and other devolved administrations, to make sure communities across the UK are ready to maximise on the opportunities that Brexit will bring."

Many Welsh farmers are heavily reliant on free trade with the EU. If the UK leaves without a deal many would face significant tariffs on their exports to EU countries.

The prime minister did not give any television interviews to Welsh broadcasters on Tuesday.

However, during the farm visit, he told reporters the agriculture sector will "have the support they need" in the event of no-deal.

"We will make sure that they have the support that they need, if there are markets that are going to be tricky that we help them to find new markets, we have interventions that aim to support them and their incomes," Mr Johnson said.

"The most important point is that we don't want tariffs and we don't envisage they will be necessary.

"And I think common sense would dictate it would be better and massively in the interests of our EU friends to have a zero-tariff, zero-quota regime of the kind we currently have."

Mr Johnson suggested funds for "export refunds" would be made available for the Welsh Government to administer.

Asked how the system would work, given agriculture is devolved, he said: "It will be up to the Welsh Government to administer it. We will make sure the funds are available."

A Welsh Government source said they were surprised by the nature of the announcement.

The farming industry is worth more than £6bn to the Welsh economy and supports 14,000 businesses, 45,000 jobs and about 25,000 farmers.

Welsh lamb will face at least 40% tariffs in a no-deal scenario, prompting a sheep farmer to call for Mr Johnson "to stop playing Russian roulette with the industry as he appears to be doing at the moment".

"If we do go out with a no deal, it will be absolutely catastrophic even if it is just for a few months," Helen Roberts, who is also development officer for the National Sheep Association in Wales, told Radio 4's Today programme.

She said her members will protest against a no-deal Brexit: "I think it's time to come and stand up for ourselves, and be counted."

On Monday, the prime minister said there was "every chance" a Brexit deal with the EU could be struck, but the existing agreement with the EU has "got to go".

However senior minister Michael Gove, who has been put in charge of preparing for no deal, has said the UK government was working on the assumption the UK would leave the EU without an agreement.

Ahead of his meeting with Mr Johnson, Mr Drakeford tweeted Brexit "will decimate our agricultural and manufacturing sectors and risks ripping the Union apart".

"The PM must stop playing fast and loose with our country," he said.

Earlier on Tuesday, Welsh Secretary Alun Cairns suggested new global markets, including in Japan, will be available to sheep meat producers.

Mr Cairns told the BBC: "We are now looking to the growth that will come from right around the world, 90% of global growth will come from outside of the EU,

"But we don't want to close our back on the European market either and that's why working hard to get a deal is important, but of course there needs to be a shift in attitude and a positive response to the cause that we're making."

• Reality check: Can farmers send lamb to Japan after Brexit?

Plaid Cymru Westminster leader Liz Saville Roberts pointed out via Twitter the Japanese market had been opened up to Welsh lamb by the EU-Japan trade deal.

Mr Cairns added farmers "can be guaranteed that the same money will be available to ensure that we are protecting this sector".

It is clear there was no meeting of minds between Mark Drakeford and Boris Johnson.

As well as having "fundamentally different views" on Brexit, the two leaders are very different characters.

The first minister is a details man - after Brexit he wants to know what support will be on offer to Welsh manufacturing and agriculture, when it'll be available and how long far.

But the prime minister paints in bold colours, and he knows that despite concerns over the impact of a no-deal exit in Wales, voters here chose to leave the EU in 2016.

This is the first of many meetings between the two leaders - whether they can find common ground remains to be seen.

source

Crude Oil Forecasts & False Predictions

A Barrel Of WTI Crude Oil

If your'e a WTI and/or a Brent Crude Oil trader outhere reading this, you may have come across articles by so called professionals on a daily basis posted on some of the biggest trading sites on the internet today and followed by thousands of viewers and subscribers.

Some of the main sites you may have come across for your price analysis and trading signals, but not limited too:

Investing.com
Oilprice.com
Fxempire.com
Forexfactory.com

These sites promote articles daily which are all created at least 24 hours before posting. The times they auto set to post the articles are carefully planned in correspondence with current market performance. Anyone following these clowns would be a fool to believe that they are not trading against you!

Yes that's correct, these information providers are NOT on your side. As a trader myself for almost 10 years I have witnessed traders losing money consistently following these forecasts and ridiculous targets. Traders are helpless when they have lost and these analysts are not answerable when they have assisted in those losses.

They tell you to buy when prices are extreme resistance highs, and sell when prices are in extreme support ranges! The market will pause for about 28-48 hours whilst it collates as many traders as possible in to going the wrong way and then BANG, the trade goes against the analysis and more importantly your trading account!!! Don't believe me? Take a step back and read some of the traders comments on trading forums, be careful though, you have a-lot of people posing as retail traders but they are agents of some of the biggest hedge fund and brokerage companies around.

Here is just one classic example of this link, (this happens everyday) this article was posted on the 28th of June (a Sunday) and later changed to the 29th of June. It mentions how sure their so called trading prediction system predicts the price of Crude Oil WTI. Alongside this there is so much market hype around global collapse along with GBP falling very low continuously based on more hype. The price of Oil at time of posting was around $56.00 a barrel. Today only 24 hours later Crude Oil WTI is trading at $58.20 a barrel and still rising. You don't need to be a mathematician to work out how much of a loss this could potentially be for thousands of traders around the globe.

The funny thing is that not only do they give you bad advice, they charge you a subscription for it!

Lesson learned? Don't take advice from the big guns unless you have done your homework. Don't pay a subscription for trading signals! There is no money back guarantee. Don't trade with a broker that is not regulated by the FCA Financial Conduct Authority.

Here is a link to the best FCA regulated broker that I have used for the last 7 years with no issues whatsoever. I have made withdrawals in excess of £250,000 in that time frame and invested £50,000 to begin with. I am by no means asking you to invest that amount but merely giving an example of there legitimacy.  Regarding trading signals, try to follow analyst less and follow your heart more, learn the basics of trading and trade small amounts, NEVER max out your margin level unless you want to lose!

Please share and comment

Will The Federal Reserve Cut Rates More Than One In 2019 Or Even At All?

Federal Reserve United States Emblem

The U.S. Federal Reserve is poised to make a monumental move: At its policy-making meeting this week, it will cut interest rates for the first time in more than 10 years. Many see this as just the first step in a new stimulus policy aimed at supporting a fragile economy.

I’m not so sure. I think there’s a good chance the Fed won’t be cutting further anytime soon.

Some think this week’s cut in the federal funds rate could be as large as half a percentage point. I don’t agree. There’s no consensus for such an aggressive move on the policy-making Federal Open Market Committee, and the most recent data show the economy gaining momentum. Also, it might compromise the Fed’s independence, creating the impression that the central bank was caving to President Donald Trump’s insistent calls for deeper cuts.

Even a quarter-point cut -- which is what I expect -- entails significant risks. What if, in hindsight, it proves to have been a mistake?

Right now, the Fed is focused on the risk that the economy will slow and inflation will keep falling short of its 2% target. If this erodes people’s expectations of future inflation, it will undermine the central bank’s ability to provide stimulus. With inflation already low, it’s hard to justify any action -- including standing pat this week -- that could precipitate such an outcome. The public and the president would inevitably blame the Fed.

Also, the Fed faces the question of how best to maintain its recession-fighting firepower at a time when interest rates are already much lower than they typically are at this stage in the economic cycle. Officials believe that earlier and more aggressive action is needed to ensure that the U.S. doesn’t end up like Japan, with interest rates stuck at zero. As Chair Jerome Powell put it, an ounce of prevention is worth a pound of cure.

That said, there’s another risk: that of needlessly stimulating the economy when it is already growing at an above-trend rate and pushing bond and stock prices to new and perhaps unsustainable heights. By focusing on downside threats such as the uncertainties of U.S. trade policy and foreign growth, the Fed might ultimately go too far. After all, the current level of short-term rates is already stimulative. If the economy maintains its momentum and inflation accelerates, the central bank could be forced to tighten again –- an abrupt about-face that could burst a financial bubble of the Fed’s own creation, increasing the chances of a painful recession. 

This second risk deserves greater attention. In recent weeks, the U.S. has seen stronger-than-expected employment gains, retail sales and growth in gross domestic product. The GDP reading for the second quarter, in particular, was considerably stronger than it appeared on the surface: Real final sales to domestic purchasers, which excludes fluctuations in inventories and trade, rose at a 3.5% annualized rate, nearly double the 1.8% rate of the first quarter. Also, core inflation accelerated a bit in June, while bond prices and consumer surveys suggest that inflation expectations have also ticked upward.

All told, the case for lowering rates is less compelling now than it was when the Federal Open Market Committee last met in June. This doesn’t necessarily mean that an interest-rate decrease this week would be a mistake. But it does mean that market participants -- who are expecting a series of cuts over the next year or so -- might be in for an unpleasant surprise, because the Fed’s future moves will be more dependent on incoming economic data than they think. There’s a good chance that, after this week’s meeting, the central bank will be “one and done.”

Find out how trading with a reputable FCA, UK broker can change your trading success by clicking here

Please share and comment

source