29.07.2019 – Daily report. At the beginning of an important week, shareholders are reluctant to make new purchases. The most important date is Wednesday: A rate cut by the Federal Reserve is deemed to have been agreed. For most brokers, the only question is how strong it will be. The resumption of trade talks between Beijing and Washington has also created a tense calm.
Frankfurt waits for the Fed
Everything looks to Washington: The DAX has worked its way up hesitantly, before the Fed’s interest rate decision on Wednesday nobody wanted to position themselves on the wrong side. Germany’s leading index, for example, was down 0.2 percent at 12,400 points until Monday midday.
On Wall Street and on the Frankfurt floor, an American interest rate average of 0.25 percentage points was most recently considered to have been agreed. Only a small part of the stock market even sees a cut of 0.5 percent. But that would probably cause a little panic – is the US economy in such a bad state? It would also be a massive disappointment if, contrary to expectations, the Fed did not push interest rates at all. But anything but the first US rate cut in more than ten years would be a huge surprise in view of new economic worries and the trade dispute with China.
Asia is also holding back
It is precisely this customs conflict that is another factor in the restraint on the stock market. From tomorrow, Tuesday, investors in global trading will be paying particular attention to their trading platform, as a U.S. delegation headed by Robert Lighthizer is expected to visit the People’s Republic for talks.
The investors in Asia had positioned themselves accordingly on Monday. In Tokyo, the leading index Nikkei 225 closed with a minus of 0.2 percent at 21,617 points. The Chinese CSI-300 fell by 01 percent to 3,854 points. In addition, investors in Japan are also waiting for their own central bank, which is expected to announce a continuation of its economic stimulus program on Tuesday. And here, too, investors expect a rate cut of a quarter of a percentage point.
Good news from New York
The USA’s instructions from Friday had played into the hands of the bull. The Dow Jones Industrial only went into the weekend with a small plus of 0.2 percent at 27,192 points. The weekly balance was similarly puny. But both the S&P 500 and the Nasdaq 100 continued their recent record run. The market-wide S&P rose by 0.7 percent to 3,026 points. And the Nasdaq 100 gained 1.1 percent to 8,017 positions; here strong figures supported Alphabet.
Interest rate cut in Turkey
There remains a short look to Ankara. Yesterday the Turkish central bank lowered its key interest rate for the first time in four years. With the strong move from 24 to 19.75 percent, politicians intervened massively in the currency market. At the beginning of July, Recep Tayyip Erdogan had pushed the central bank governor out of office and replaced him with his deputy. He now delivered as requested. Interestingly, the lira has recently shown itself to be relatively stable – low interest rates normally put pressure on a currency. Does the market now see the lower interest rate as a self-confident sign that the economy is about to recover? Or is someone buying Turkish lira in the background? In any case, the lira collapsed immediately after yesterday’s announcement, only to subito miraculously recover afterwards. Perhaps the central bank had just destroyed a few shorts with support purchases. We are keeping an eye on developments.
Economic data had created a good mood: the American gross domestic product for the second quarter had grown by 2.1 percent, which was stronger than most had expected. However, the effects of the new tariffs and the trade dispute with China had certainly become apparent. Which is a good argument for a Fed cut.
But even the US stock market is unlikely to move much in the near future. The US job report on Friday is also in focus alongside the Fed. And incidentally, almost a third of the companies listed in the S&P 500 report their figures this week. For example, we are looking forward to quarterly figures from heavyweights such as Apple, General Motors, Merck and Procter and Gamble.
This is what the day brings
So full the week, so empty the Monday. Consider this a calm before the storm if you trade CFDs or are active in online stock trading.
Bernstein-Bank wishes you very successful trades!
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