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Dow Futures Surge as Billion Investor speculates Fed Rate Deep to zero

By CCN: Dow Jones futures carved out a tense third-digit rally in early trading on Tuesday when the market was priced in a poorer Federal Reserve policy.

Traders now expects a number of Fed rate cuts as soon as July. A billionaire investor said the Fed could even cut the fund's interest rate to zero in the next 18 months.

The shady shift is a response to recession alerts and the negative effects of the trade war between the United States and China.

Dow Futures Fighting for Triple-Digit Rally

The Dow Jones Industrial Average (DJIA) appears to open in positive territory on Tuesday, with DJIA futures pushing 142 points higher (0.57 percent) at 6.25 AM ET .

  Dow Jones futures chart, Wednesday June 4,

Dow Jones futures increased in early trading on Tuesday as traders price in a higher chance of interest rate cuts. Source: Yahoo Finance

S & P 500 futures followed a similar pattern, beating 14.75 points higher (0.54 percent) to hit 2,764. After a heavy sale on Monday's trading session, Nasdaq futures also point to a strong open as futures rose 45.25 points (0.65 percent) to 7.039.

It marks an impressive rally while Asian markets fell overnight.

Fed rate cut to zero for 18 months?

As CCN reported, prices are now trading at a 68 percent chance of a July price cut. It's up from just 20 percent last month.

  chance of the Federal Reserve interest rate net

The liquidity of the interest rate cut in the Federal Reserve shot up to 68.1% in June. Source: New York Times / CMC Markets

"The market is still convinced that the Fed will cut. The only question is how soon and how much" – Mark Cabana, Bank of America Corp.

Billionaire wealth manager Stan Druckenmiller sees the Fed player even faster. In an interview with Bloomberg, he sees a future where the Fed beats the fund's interest rate to zero within the next 18 months, unless economic data picks up.

Dow Jones: a miserable month in May

Traders are thinking again about reducing the likelihood after a month of deteriorating losses on Dow Jones. Wall Street screams recession alerts, and trade talks with China turned down completely. Treasury dividends have also declined as investors lose confidence in the economy.

  Dow Jones chart in May

Dow Jones declined in May and broke a four-month winning knit. Source: Yahoo Finance

Smoothing federal funds is a weapon that the Fed can use to inject stimulus into the US economy. Historically, interest rates contribute to bending Dow Jones by giving companies access to cheaper loans. As CCN reported, easing monetary policy would reduce the chance of all-out stock market collapse.

St. Louis Fed President James Boullard, who has voting rights at the Federal Open Market Committee, said it would be a speed cut "soon" to accommodate the negative impact of the war.

No end in view of commercial war

Druckenmiller supported its zero rate prediction with a pessimistic analysis of the commercial war. He said Trump is unlikely to fall back before the 2020 election. The threat of tariffs plays too well with his base, and he will need that weapon to fight for re-election.

In a sign of worsening relations, China this morning warned its citizens to travel to the United States. Quoting shots, robberies and harassment against foreigners, China issued a warning to those who work, study or travel to the United States.

The war fears hit the market hard in May, but the promise of interest rate cuts could inject much-treated optimism back into the market. Fed Chairman Jerome Powell will speak in Chicago today and can offer further clues.

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