Yesterday, the Central Bank announced a possible reduction in interest rates, but not this year.
However, a change in the Fed’s rhetoric reinforces the market’s expectations of a quicker decision to lower interest rates.
After strong falls on the stock market in May, June shows significant growth on Wall Street.
On Thursday, the major indexes rose as the market expects interest rate cuts in July.
The S & P 500 index rose 1% to a record high of 2,954.18. The Dow Jones Industrial Average closed with an increase of 249.17 points and amounted to 26 753.17. The Nasdaq Composite Index added 0.8%, ending the day at 8,051.34.
The yield on 10-year Treasury bonds fell below 2% for the first time since November 2016. Investors welcomed the decline in benchmark mortgage rates and corporate bonds.
Growth in energy sector stocks was more than 2%, which led to an increase in all 11 sectors of the S & P 500, as oil prices jumped.
The technology sector grew by 1.4% after Oracle shares rose by more than 8% thanks to profits exceeding forecasts. The growth of General Electric shares by 2.8% increased the industrial sector by more than 1.6%.
“Markets are based on quantity and perception. If the perception is such that rates are falling, it will lead to market growth, ”said Katie Antwistl, senior vice president of asset management at UBS. “The position of UBS until yesterday was that this year we will not see a reduction in rates. Now we see a much greater likelihood of a 50 basis point reduction. ”
Marketinfo.pro wrote yesterday that “the Fed did not change interest rates, but indicated their possible reduction.” The Central Bank moved away from the “patient approach” position and acknowledged the growing economic risks, with inflation falling below the target level of 2%. Although the Fed decided by a majority of votes to leave the rates untouched, Chairman Jerome Powell admitted that the arguments for lowering the rates are growing.
According to the CME FedWatch tool, traders can now expect a 100% rate reduction next month. The probability of 64% — that there will be one reduction in the rate in the range from 2% to 2.25%, the probability of 36% — two reductions, according to CME.
“FOMC has strengthened the market conviction,” said Steve Blitz, chief American economist at TS Lombard. “Except for a sharp turn in the data, the next step will be a reduction — perhaps even a reduction of 50 bp”
This month, traders are increasingly betting on growing trading tensions combined with weaker economic data, which will force the Fed to weaken its position in monetary policy.
It is expected that next week there will be a meeting between US President Donald Trump and his Chinese counterpart Xi Jinping at the G-20 summit, which will be held in Japan from June 28-29. The negotiations of the heads of state should determine the subsequent vector of trade relations, which at this stage are moving towards an ever-increasing escalation and subsequent increase in duties.
On Thursday, in the foreign exchange market, the dollar fell against other major currencies. The dollar index fell by 0.5% to 96.65, which is due to the fall of the euro by 0.6%. The yen and the Canadian dollar also rose against the US currency.
Meanwhile, Slack shares rose more than 40% on the first day of trading. Shares closed above $ 38 compared to the fixed base price of $ 26.