Financial market research and analysis

Wall Street soared higher overnight. The Dow rallied 500 points in its second-best trading session of the year thanks to a more dovish Fed Charmin Jerome Powell. Asian markets followed suit and European bourses are pointing to a stronger start on the open in a clear case of central banks to the rescue, even if the effect is only short term.

At an event hosted by the Federal Reserve Bank of Chicago, Jerome Powell signalled that the Fed stood ready to ease monetary policy, to support the US economy, in the case of a downturn amid a drawn-out US – Sino trade dispute. The three main US indices each gained over 2% with the Nasdaq climbing 2.7% paring losses from the tech rout earlier in the week.

Powell gave the markets what they wanted to hear, and the result was a spectacular rally, as traders increased their bets of a rate cut happening before the year end. Jerome Powell’s speech followed similar comments from other Fed officials earlier in the week. This is usually a sign that the Fed wants to prepare investors for a shift in policy. Risk assets lifted as investors responded to the prospect of a lower interest rate environment. An environment which is more favourable to business owing to reduced borrowing costs.

No end in sight for trade war

Whilst the markets are giddy on central bank support, the effects could be short lived. Let’s not forget the other half of the equation is the escalating trade war on multiple fronts. Today the markets are happy to focus on Fed support, but with the US Commerce Department promising retaliation in the event of China’s rare earth’s threat, this trade war looks set to get worse before it gets better.

Gold shines on rate cut optimism

The changing tone of the Fed boosted stocks across the globe, however, the dollar trended lower. The weaker dollar and the prospect of a rate cut, even by September is keeping gold elevated at $1330. The opportunity cost of holding non yielding gold is declining, offering support to the precious metal.

Can euro hold its gains ahead to Thursday’s ECB rate announcement?

The euro is capitalising on the weaker dollar, pushing back up to $1.1278 even after data showed inflation to be lacklustre and slipping further away from the ECB’s target of 2%. Today euro traders will look towards retail sales data, which are expected to have declined in April. The weak inflation and worsening economic data for the bloc is likely to spook ECB policymakers as they meet to discuss monetary policy. A more dovish ECB could see the euro quickly give back some of its recent gains.