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All power to Powell, but is this the Waterloo for the bull market? His dovish remarks lit the green buy light across the board. Stocks, oil, gold, bonds and currencies ex the dollar are pretty well all bid up with the Fed apparently happy to keep its hand on the pump. What happens when it stops cutting (one and one for insurance purposes?) and what happens if the US-China trade sitch goes awry? Market seems priced for perfection and earnings are slowing.

The S&P 500 briefly broke through 3,000 to achieve an all-time high, but closed a few points short of its record close at 2,993.07. The Dow also set a new intra-day peak, while the Nasdaq set a closing high. 

Asia has been lifted higher on the coattails of Wall Street. European markets are up across the board. Roughly quarter point gains for the main bourses – hardly euphoria in Europe and still some way off all-time highs. Come on Mario, now’s your time!

Powell power 

Powell said the stronger jobs report last week didn’t alter his outlook – so what might? Certainly the jobs market has slowed a touch this year – employment growth has averaged 172,000 per month thus far this year, compared with an average monthly gain of 223,000 in 2018. But it’s hardly requiring a cut.  

As noted yesterday: Investors are buying the Fed put hook, line and sinker. 

The Fed chair has well and truly left the door open to a rate cut in July, albeit there remain doubts about whether this is going to be first of several cuts or just an ‘insurance’ cut designed to keep markets on an even keel. The testimony didn’t appear to tell us anything about what the Fed is thinking longer term. His comments though did nothing to nudge market expectations towards a more neutral position. He seems happy to allow markets to crystallize their belief in a July cut.


Interesting set of minutes from the FOMC’s last meeting coming in the middle of this Powell testimony. What’s clear is that they will cut in July. Hat tip to Helen Thomas of BlondeMoney for noting that the Fed has basically admitted that it is going to cut because the market wants it to. From the minutes: “While overall financial conditions remained supportive of growth, those conditions appeared to be premised importantly on expectations that the Federal Reserve would ease policy in the near term to help offset the drag on economic growth stemming from uncertainties about the global outlook and other downside risks.” 

French-US relations 

The threat of EU-US trade spat needs to be considered. The White House is not happy with France’s digital tax, which it says unfairly targets the big US tech giants. For sure it does – but that is because they do not pay an appropriate level of tax. It’s also because Europe doesn’t really have many big tech firms that would be affected. Nonetheless, Trump will use this to beat the French and we can expect Tariff Man to do something. The US doesn’t want to cede the regulatory leadership to Europe either. 

FX – Dollar weakness has returned after Powell’s testimony. Some bid seen this morning for the euro and sterling. Neither the euro nor pound however are able to mount a serious challenge yet – we’re not seeing this as a major technical breakout. GBPUSD has firmed above 1.25, but Brexit fears are unabated. Richard Branson says no-deal would take cable back to 1. Pound-dollar parity is a risk but longer-term it wouldn’t last. A kneejerk to that level is possible, but we’d anticipate the pound recovering ground.

EURUSD at 1.1270 is still well short of the Jun highs around 1.14. Potential head and shoulders – we could in fact see a big breakdown to the downside if the ECB turns extra dovish. Need to clear the left shoulder at 1.1350 for bulls to be happy. 

Oil – Brent futures firming up above $67 and WTI north of $60 after a big drawdown on US stockpiles and an escalation in tensions around the Strait of Hormuz. Reports indicate a Royal Navy frigate warded off Iranian boats that tried to impede a BP tanker. Iran had warned that it would retaliate after Royal Marines seized an Iranian ship off Gibraltar. Dollar weakness and Fed dovishness are also supportive.

Bitcoin – another rollercoaster session. Bitcoin skidded sharply lower yesterday and continued to move south overnight. Seems to have encountered fairly stiff resistance around that $13,300 level we mentioned previously but the selloff was pretty brutal – down to $11,600 in short order, where it has found support. Look for another push higher to the $13k mark, but if the $11,500/600 level fails to hold then $10k is possible in double quick time.

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