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Mar 21, 2019, by Lorcan Roche Kelly
(Bloomberg)
Dovish surprise
The Fed went beyond the market’s most dovish hopes, signaling it will extend a pause on rates through the year, and increasing the odds its next move will be a cut. The initial reaction in stocks was to rally, but that faded before the end of the session as investors digested the implications of the decision: If policy makers are this worried about the outlook for growth, then maybe traders should be too. It’s a different story in the bond market where Treasury yields fell, and bonds across the world rose, with the yield on Germany’s 10-year bund moving back towards zero percent this morning.
Tariff play
President Donald Trump said he will keep the tariffs he imposed on China in place until he is sure Beijing is complying with the terms of any trade deal agreed between the world’s two largest economies. The comments, made at the White House yesterday, significantly dim hopes of an agreement soon, as Chinese negotiators had been pushing for the removal of the measures as part of a deal. U.S. Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer are due to visit China on March 28 and 29, and analysts still think a deal is more likely than not as Trump would not want to risk weakening the American economy ahead of next year’s election.
On the edge
British Prime Minister Theresa May is racking up more air miles today, as she once again dashes to Brussels for a European Leaders summit with her plans for an orderly withdrawal of the U.K. from the EU in disarray. Her letter yesterday to those leaders asked for an extension of the March 29 deadline to June 30, something which caught the EU by surprise since they had been expecting a request for a longer pause. EU President Donald Tusk told reporters that a short extension would only be agreed if Parliament passed the – already twice defeated – withdrawal agreement ahead of the current deadline. Amid all of this uncertainty, the Bank of England is set to publish its latest monetary policy decision at 8 a.m. Eastern Time. Needless to say, no change is expected.
Markets mixed
Overnight, the MSCI Asia Pacific Ex-Japan Index gained 0.3 percent while China’s Shanghai Composite Index closed up 0.4 percent as it moved back towards the highest level of the year. Japan was closed for a holiday. In Europe, the Stoxx 600 Index was 0.2 percent lower at 5:50 a.m. with financial stocks leading the losses. S&P 500 futures pointed to a slightly lower open, the 10-year Treasury yield was at 2.521 percent and gold was higher.
Coming up…
At 8:30 a.m. weekly jobless claims are expected to show a slight decrease to 225,000. The March Philadelphia Fed Business Outlook is due at the same time. The U.S. Leading Index for February is published at 10:00 a.m. Nike Inc. reports earnings today, with Chinese social media giant Tencent Holdings Ltd. earlier delivering results that disappointed analysts.
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