US stock indexes ended slightly higher on Wednesday, after the Federal Reserve reaffirmed that it's prepared to cut interest rates if needed to shield the economy from trade conflicts or other threats.
Business investment is slowing, uncertainty has increased, and the USA economy is growing at a "moderate" pace, the Fed said Wednesday, a notable downgrade from last month when the central bank characterized the economy as "solid". Officials indicated that they expected to cut rates next year, reducing the median Fed funds rate forecast to 2.1% for 2020.
In his press conference following the end of the latest two-day policy meeting on Wednesday, Powell noted the concern that weak inflation could become "sustained", dropping his previous description of it as "transient".
The Chinese yuan has recovered over the past couple of days on hopes of US-China talks next week on the sideline of Group of 20 summit. The broad market S&P 500 added 0.3%, or 9 points, ending at 2,926. Germany's 10-year government bond yield, a benchmark for sovereign debt in the euro zone, was down 3 basis points at -0.316 per cent, testing this week's record low of -0.327 per cent.
The Fed kept its benchmark rate - which influences many consumer and business loans - in a range of 2.25% to 2.5% despite the president calling for a "level playing field.' In its statement Wednesday, the Fed removed a reference to being 'patient" about adjusting rates. That's where it has been since December.
These two lines in the Fed's statement help to narrow the reasons behind a future rate cut. The Fed's dovish outlook should colour the thought process for Asian policymakers moving forward while potentially lowering the bar for more policy easing across the region, which may also translate into a propensity for currency weakness. That would be down sharply from the 2.9% rate in 2018.
Trump pins tanker attacks on Iran but says shipping safe
It is notable that tankers carrying Iranian cargoes, or tankers heading to Europe, seem to have been immune from such attacks. However on Thursday, Pompeo listed a number of accusations against Iran, . calling it a "campaign of escalating tension".
Stocks opened the week higher and rallied on Tuesday after President Donald Trump said he plans to meet with China's president at the end of the month to discuss their ongoing trade war. The IMF specifically mentioned worldwide trade disputes as a headwind to global economic growth. Only one participant wants to raise rates this year. The trade-related developments since May have only confirmed that the situation remains fluid, which clouds the outlook among policymakers and investors. "It's kind of ridiculous to think that the Fed was going to cut today".
He said earlier this month that a rate cut could be needed "soon".
Elsewhere, oil prices jumped 3 per cent after Iran shot down a US drone that its Revolutionary Guards said was flying over southern Iran, raising fears that a military confrontation could erupt between Tehran and Washington.
The Fed's decision not to cut its key interest rate came only a day after Trump once again seemed to threaten Powell with removal from his job.
Although the G20 poses a risk for financial markets and gold, Otunuga said that the yellow metal's technical outlook is bullish.
Oil prices held firm, underpinned by a larger-than-expected decline in US crude inventories. "While it is slowing, major imbalances that would suggest a recession is imminent or even likely are not on the horizon".