Dow slumped 333, decliners modestly ahead of advancers & NAZ fell 98. The MLP index dipped lower in the 248s & the REIT index was off fractionally to the 389s. Junk bond funds slid lower & Treasuries were in strong demand, taking the yield on the 10 year Treasury down 4 basis points to 2.92%. Oil inched higher in the 58s & gold gave back 10, falling to 1431 (more on both below).
AMJ (Alerian MLP Index tracking fund)
![Live 24 hours gold chart [Kitco Inc.]](https://www.kitco.com/images/live/gold.gif?0.2180338269244485)
When the Fed, as expected, cut interest rates by a ¼ point, it disappointed markets because it did not tip its hand on future rate reductions. Bond yields fluctuated, but were off lows of the session, which were hit right before the Fed statement. Yields rose & backtracked, & stocks fell. The 2-year yield was at 1.83% & the Dow was down about 50 points just before Fed Chair Jerome Powell began speaking. 2 Fed officials, Kansas City Fed Pres Esther George & Boston Fed President Eric Rosengren dissented, as expected, but the dissents themselves create a lack of clarity about future policy. The Fed also ended its quantitative tightening program 2 months early, as expected. That program involved the rolldown of securities on the Fed's balance sheet, which the Fed will now replace as they mature. The Fed revised its statement to include that it was cutting rates because of “the implications of global developments for the economic outlook as well as muted inflation pressures” Strategists said the Fed was facing the difficult task of explaining why it was cutting interest rates at a time when US data appears to be improving. The Fed has been citing soft inflation & concerns about global growth & trade war uncertainties.
Fed disappoints markets by sounding more ‘neutral’ than dovish
Federal Reserve Chair Jerome Powell said the central bank's rate cut was part an ongoing move to adjust to economic conditions though no guarantee of future cuts. Cutting rates as way to brace against “downside risks,” to support the economy and to boost inflation, Powell added after the vote. “We’re thinking of it essentially as a mid-cycle adjustment to policy,” he said. He added that Fed officials “think it will serve all of those goals” that he mentioned. Looking at the history of the Fed, Powell cautioned against assuming that this week's cut is the beginning of the cycles that happened in the past. “That refers back to other times when the FOMC has cut rates in the middle of a cycle and I’m contrasting it there with the beginning of a lengthy cutting cycle,” he said. “That is not what we’re seeing now, that’s not our perspective now.” Markets took Powell's comments to be less dovish than anticipated, prompting a sharp selloff that pushed the Dow briefly down 470. The Fed voted to reduce its benchmark lending rate a qtr point to 2-2.25%. It was the first reduction in the benchmark funds rate since Dec 2008. Powell said the policy loosening is part of an evolution that began earlier this year, when the Fed switched from intending to hike rates twice this year to agreeing to a “patient stance.” As concerns intensified over global growth, tariffs & low inflation, officials switched their stance in Jun to seeing a greater case for rate hikes to deciding to approve the rate cut at the 2-day meeting. He added that there was “definitely an insurance aspect” to the cut. “What you’ve seen over the course of the year as we’ve moved to a more accommodative policy, the economy has performed about as expected with the gradually increasing support,” Powell said. “Increasing policy support has kept the economy on track and kept the outlook favorable.”
Fed Chief Powell says rate move was a ‘mid-cycle adjustment,’ hinting more cuts not a guarantee
Gold futures finished lower, then extended their decline in to the electronic trading session after the Federal Reserve reduced its key interest rate by a qtr point, as expected. The vote was 8-2, with Boston Fed Pres Eric Rosengren & Kansas City Fed Pres Esther George dissenting. They preferred no change. The most-active Dec gold contract was trading at $1439 an ounce in electronic trading about ½ an hour after the Fed announcement. It had settled down by $4 (0.3%) at $1437 before the news. For the month, the yellow metal gained 1.7%, based on the most-active Aug contract finish of $1413. It notched a 3rd consecutive monthly rise. Gold has benefited from hope that the FOMC will reduce benchmark borrowing costs & signal a willingness to do what it takes to sustain US economic expansion in a record-setting 11th year of expansion.
Gold futures finish with a loss, then extend their decline after Fed cuts key interest rate, as expected
When it comes to the oil prices, market bulls are hoping Jerome Powell & his band of Federal Reserve policy makers can do what falling US crude inventories & rising geopolitical tensions haven't managed by giving crude a lasting kick higher. Despite 6 straight weeks of falling US crude inventories & the rising danger of military conflict between the US & Iran near the Strait of Hormuz, the world's most sensitive oil choke point, West Texas Intermediate crude, the US benchmark, is barely up in Jul, while Brent crude, the global benchmark, is up 0.6%. So far this year, WTI is up nearly 29%, while Brent has gained around 21%, bouncing back from a Q4-2018 selloff. But both have lost ground over the past 12 months by nearly 15% & 12%, respectively. The $ often carries an inverse correlation with commodities. A weaker $, for instance, makes goods priced in $s less expensive to users of other currencies while a stronger $ has the opposite effect. The lack of a rally has left some market bulls nervous. OPEC & the Intl Energy Agency, which represents oil-consuming economies, have both lowered their forecasts for demand growth. The IMF earlier this month cut its outlook for global economic growth & ECB Pres Mario Draghi last week lamented a “worse and worse” outlook for the eurozone's manufacturing sector.
Oil bulls look to Fed rate cut to overcome demand worries
The Fed meeting created a lot of excitement, much more than it usually does. After the Fed announcement, the Dow plunged almost 500. But the commentary after the meeting calmed some nerves & late day buying trimmed that loss. The rate cut was delivered, but future reductions are now less clear making investors nervous. Going forward, jitters will dissipate & US-China trade tensions will be getting more attention. For the month, the Dow managed a gain of about 260 & was able to reach record territory at mid month.
Dow Jones Industrials
AMJ (Alerian MLP Index tracking fund)
The Federal Reserve cut interest rates for the first time since the start of
the financial recession more than a decade ago, hoping to
preserve the 11-year economic expansion from growing global uncertainties. During
its 2-day meeting, the FOMC voted, as
expected, to ease the benchmark federal funds rate by 25 basis points,
ending an era of monetary policy tightening by policymakers, who have
voted 9 times since 2015 to hike rates. In
approving the cut, the range is 2-2.25%, the central bank cited "the implications of global
developments in the economic outlook as well as muted inflation
pressures." Those uncertainties include Brexit, the US-China trade war & softening global growth. Policymakers said they will continue to
act "as appropriate" to sustain the economic expansion in weighing a
potential future cut. Currently, traders are pricing in a 77% chance of a 2nd qtr-percent cut during the FOMC's Sep meeting. The cut should placate Pres Trump, who
frequently belittles the Fed, & its chair, Jerome Powell, for
raising interest rates too high, too quickly — but also raised questions
about whether the central bank is truly independent, given the
stronger-than-expected economic data out of the US in the past few
months. For instance, in the spring, the US economy expanded at a 2.1% annualized rate, beating expectations. "The
issue is more the downside risks and the shortfall in inflation,"
Powell said. "We’re trying to address those.
In addition, going forward, I would say, we’ree going to be monitoring
those same things, the evolution of trade uncertainty, of global growth
and of low inflation. We’ll also, of course, be watching the performance
of the U.S. economy...We’ll be putting all of those together, and
that’s how we’ll be thinking of policy going forward." It
is a fairly remarkable policy shift for what is typically viewed as a
slow-moving regulatory body, reversing years of slow-but-steady
tightening. The Fed has not reduced interest rates since 2008, when it
essentially dropped rates to zero to cope with the fallout from the
financial crisis. At the time, the GDP was at -0.1% &
unemployment was at 6%. Experts caution,
however, that concerns over a slowing economy are warranted, are not
necessarily evidence of the Fed caving to external pressure from the
White House. For consumers, lower interest rates — which affect borrowing costs,
including auto loan rates & 30-year-fixed mortgage rates — can mean
thousands of $s in savings, spurring spending. Although the lending
rate is the highest level in years, it's low by historical standards.
But Fed officials believed it was better to cut rates now to prevent a
recession than to wait for an economic slowdown.
Fed cuts interest rates for first time since the financial recession
When the Fed, as expected, cut interest rates by a ¼ point, it disappointed markets because it did not tip its hand on future rate reductions. Bond yields fluctuated, but were off lows of the session, which were hit right before the Fed statement. Yields rose & backtracked, & stocks fell. The 2-year yield was at 1.83% & the Dow was down about 50 points just before Fed Chair Jerome Powell began speaking. 2 Fed officials, Kansas City Fed Pres Esther George & Boston Fed President Eric Rosengren dissented, as expected, but the dissents themselves create a lack of clarity about future policy. The Fed also ended its quantitative tightening program 2 months early, as expected. That program involved the rolldown of securities on the Fed's balance sheet, which the Fed will now replace as they mature. The Fed revised its statement to include that it was cutting rates because of “the implications of global developments for the economic outlook as well as muted inflation pressures” Strategists said the Fed was facing the difficult task of explaining why it was cutting interest rates at a time when US data appears to be improving. The Fed has been citing soft inflation & concerns about global growth & trade war uncertainties.
Fed disappoints markets by sounding more ‘neutral’ than dovish
Federal Reserve Chair Jerome Powell said the central bank's rate cut was part an ongoing move to adjust to economic conditions though no guarantee of future cuts. Cutting rates as way to brace against “downside risks,” to support the economy and to boost inflation, Powell added after the vote. “We’re thinking of it essentially as a mid-cycle adjustment to policy,” he said. He added that Fed officials “think it will serve all of those goals” that he mentioned. Looking at the history of the Fed, Powell cautioned against assuming that this week's cut is the beginning of the cycles that happened in the past. “That refers back to other times when the FOMC has cut rates in the middle of a cycle and I’m contrasting it there with the beginning of a lengthy cutting cycle,” he said. “That is not what we’re seeing now, that’s not our perspective now.” Markets took Powell's comments to be less dovish than anticipated, prompting a sharp selloff that pushed the Dow briefly down 470. The Fed voted to reduce its benchmark lending rate a qtr point to 2-2.25%. It was the first reduction in the benchmark funds rate since Dec 2008. Powell said the policy loosening is part of an evolution that began earlier this year, when the Fed switched from intending to hike rates twice this year to agreeing to a “patient stance.” As concerns intensified over global growth, tariffs & low inflation, officials switched their stance in Jun to seeing a greater case for rate hikes to deciding to approve the rate cut at the 2-day meeting. He added that there was “definitely an insurance aspect” to the cut. “What you’ve seen over the course of the year as we’ve moved to a more accommodative policy, the economy has performed about as expected with the gradually increasing support,” Powell said. “Increasing policy support has kept the economy on track and kept the outlook favorable.”
Fed Chief Powell says rate move was a ‘mid-cycle adjustment,’ hinting more cuts not a guarantee
Gold futures finished lower, then extended their decline in to the electronic trading session after the Federal Reserve reduced its key interest rate by a qtr point, as expected. The vote was 8-2, with Boston Fed Pres Eric Rosengren & Kansas City Fed Pres Esther George dissenting. They preferred no change. The most-active Dec gold contract was trading at $1439 an ounce in electronic trading about ½ an hour after the Fed announcement. It had settled down by $4 (0.3%) at $1437 before the news. For the month, the yellow metal gained 1.7%, based on the most-active Aug contract finish of $1413. It notched a 3rd consecutive monthly rise. Gold has benefited from hope that the FOMC will reduce benchmark borrowing costs & signal a willingness to do what it takes to sustain US economic expansion in a record-setting 11th year of expansion.
Gold futures finish with a loss, then extend their decline after Fed cuts key interest rate, as expected
When it comes to the oil prices, market bulls are hoping Jerome Powell & his band of Federal Reserve policy makers can do what falling US crude inventories & rising geopolitical tensions haven't managed by giving crude a lasting kick higher. Despite 6 straight weeks of falling US crude inventories & the rising danger of military conflict between the US & Iran near the Strait of Hormuz, the world's most sensitive oil choke point, West Texas Intermediate crude, the US benchmark, is barely up in Jul, while Brent crude, the global benchmark, is up 0.6%. So far this year, WTI is up nearly 29%, while Brent has gained around 21%, bouncing back from a Q4-2018 selloff. But both have lost ground over the past 12 months by nearly 15% & 12%, respectively. The $ often carries an inverse correlation with commodities. A weaker $, for instance, makes goods priced in $s less expensive to users of other currencies while a stronger $ has the opposite effect. The lack of a rally has left some market bulls nervous. OPEC & the Intl Energy Agency, which represents oil-consuming economies, have both lowered their forecasts for demand growth. The IMF earlier this month cut its outlook for global economic growth & ECB Pres Mario Draghi last week lamented a “worse and worse” outlook for the eurozone's manufacturing sector.
Oil bulls look to Fed rate cut to overcome demand worries
The Fed meeting created a lot of excitement, much more than it usually does. After the Fed announcement, the Dow plunged almost 500. But the commentary after the meeting calmed some nerves & late day buying trimmed that loss. The rate cut was delivered, but future reductions are now less clear making investors nervous. Going forward, jitters will dissipate & US-China trade tensions will be getting more attention. For the month, the Dow managed a gain of about 260 & was able to reach record territory at mid month.
Dow Jones Industrials
