A string of supportive data in recent weeks and comments from top Fed officials have helped push equities higher in August after starting the month in turmoil on fears of a US recession
Stock markets slid on Tuesday following a weak day on Wall Street as traders took a breather from a recent rally fuelled by bets on a US interest rate cut, while oil eased from a surge caused by Middle East tensions.
A string of supportive data in recent weeks and comments from top Fed officials have helped push equities higher in August after starting the month in turmoil on fears of a US recession.
Fed chair Jerome Powell confirmed in a much-anticipated speech Friday that the time had come to begin reducing borrowing costs from their two-decade highs as inflation slows to the bank’s 2% target and the labour market softens.
Talk is now centred on how much the Federal Reserve will cut next month, and how far it will go afterwards.
Powell was followed on Monday by the head of the San Francisco Fed, Mary Daly, saying it was “hard to imagine” not cutting next month while Richmond chief Thomas Barkin hinted he supported “dialling down”.
Still, that was not enough to help traders build on their gains, with focus now on the release of several data points while geopolitical concerns act as a drag on sentiment.
Right now, market participants are likely to focus on the state of the US economy in line with the Fed’s interest rate cut cycle on whether the Federal Reserve is late in the game of enacting its interest rate cuts and the potential impact on risk assets, according to Oanda’s Kelvin Wong.
Any leading economic data and labour market conditions, which suggest deterioration in growth and employment may trigger another similar risk-off episode, he added.
If such a scenario occurs, the Fed may be forced to embark on larger interest rate cuts, he said.
