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Fed to cut interest rates for the first time since 2008; the work data must be strong



Dealers work on the floor of the NYSE.

Brendan McDermid | Reuters

The Fed is expected to cut interest rates for the first time in more than ten years on Wednesday, a precautionary move as concerns rise about the effects of trade wars and a declining global economy.

Friday's July work report would show that the US economy is still strong, with 170,000 non-farm pay added and an extremely low unemployment rate of 3.7%, according to Refinitiv. This follows Friday's second-quarter GDP report, which grew better than expected 2.1

%, but showed clear signs of impact from customs and trade friction.

Stocks achieved last week, with S&P 500 and Nasdaq new highlights, as investors expected a Fed cut and also a better earnings season than expected. Revenue growth is slightly positive so far this quarter, but it can improve with another big income wave this week, as nearly a third of the S&P 500 report.

Apple, Exxon Mobil, Procter and Gamble, Merck, General Motors and Verizon are among companies reporting. Beyond Meat, the hot stock exchange listing with a market run of more than a quarter of the companies in the S&P 500, reports on Monday. Seventy-five percent of the companies have hit estimates so far and 60% are turning their income expectations.

However, it will be the Fed that is likely to have the most market impact, and strategists are looking for the central bank to signal that it is open to future cuts, but not necessarily to promise them. Economists generally expect anywhere from one to three interest rate cuts this year, but it is almost unanimous that this first cut will be a quarter percentage point.

"The market rates with a cut of 25 basis points," says Quincy Krosby, chief market strategist at Prudential Financial. "We already know of two Fed presidents who do not think we need it, so there is obviously going to be a discussion with the strong data. The chairman, who is in the camp we need to get an insurance shot, is going to do the thing In fact, while the economic data is steadily gaining strength, they are still concerned about weakening conditions due to uncertainty about trade and customs rates. "

The strains of the commercial war and tariffs were reflected in a reduction in gross private domestic investment in the second quarter of GDP at 5.5%, the worst decline in that category since 2015. Within this, exports fell 5.2%. The decline in business investment dried a full percentage point from the final GDP figure.

Over the past few weeks, as the Fed meeting approached, financial data began to show signs of improvement from a soft update this winter and spring. Consumers, which make up 70% of the economy, strengthened in the second quarter, with consumption up 4.3%, the best reading since the fourth quarter of 2017.

Fed "will signal that they will continue if conditions warrant it. "Clearly, the chairman and his cohort are not looking at incoming data in the sense that they are computer-dependent. They made it clear that they would inoculate the economy," Krosby said.

Stephen Stanley, chief economist at Amherst Pierpoint said he expects the Fed to cut interest rates only once and then stop.

"They won't say we're done. I think it would be too much for the market. My opinion is that they leave the door open, but their goal is not to be locked in for the next meeting. clearly a function of how the data plays out, "Stanley said. "I'm just more optimistic than they are about how things should evolve."

Investors will also look for trading headlines in the coming week, when the US delegation returns to China for the first round of face-to-face talks since May.

Week Ahead Calendar

Monday

Income: Sanofi, Ryanair, AK Steel, Transocean, Texas Roadhouse, Beyond Meat, Vornado Realty, Booz Allen Hamilton, Cognex, PerkinElmer [19659002] Tuesday

2-day FOMC meeting begins

Revenue: Apple, Amgen, Procter and Gamble, MasterCard, BP, ConocoPhillips, Merck, Pfizer, Corning, Cummins, Martin Marietta Materials, Bayer, Advanced Micro, Ralph Lauren, Under Armor, Sony, Eli Lily, Electronic Arts, Samsung Electronics, DR Horton, Gilead Sciences, Mondelez, Xerox, Groupon, FireEye, Genworth, Yum

8:30 pm Personal income and expenses

9:00 am S & P / Case-Sh ferret home prices

10:00 am Pending home sales

10:00 am consumer confidence

Wednesday

Revenue: General Electric, Occidental Petroleum, Baker Hughes, Qu Alcomm, Vale, Apache, American Tower, Humana, Fiat Chrsyler, Encana, Credit Suisse, CME Group, Airbus, BNP Paribas, Carlyle Group, AMC Networks, Sturm Ruger, SunPower, Ethan Allen, Bloomin Brands, Spotify, Johnson Controls [19659002] 08:15 ADP employment

08:30 Employment cost index

09:45 Chicago PMI

14:00 FOMC statement

14:30 pm Fed chair Jerome Powell briefing

Thursday

Monthly vehicle sales

Revenue: Verizon, General Motors, Archer Daniels Midland, Barclays, Delphi Automotive, Kellogg, Marathon Petroleum, Dunkin Brands, Generac, TreeHouse, Square, Petrobras, SVMK, Teradata, Etsy, GoPro, Yeti, Legg Mason, US Steel, Alliant Energy, Wayfair, ArcelorMittal, Siemens, Clorox, S&P Global, Parker Hannifin, Cigna, HollyFrontier, Andeavor Logistics, Avon Products, Hanesbrands [9659002] 9:00 am Manufacturing PMI

9:45 am Manufacturing PMI

]

Revenue: Exxon Mobil, Chevron, Allianz, Honda Motor, Toyota Motors, Seagate, Sempra Energy, CBOE Holdings, Silled Air, BT Group, Ameren, Cinemark, Newell Brands, Noble Energy [19659002] 8:30 am am Employment report

08:30 International trade

10:00 consumer sentiment

10:00 pm Factory orders


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