Powell signals rate cuts on the horizon
Federal Reserve Chair Jerome Powell has indicated that US interest-rate cuts are likely on the horizon, leading to a bullish outlook for bonds in developed markets. Although Powell didn’t specify a timeline, traders expect the first cut in September, followed by two more by year’s end. This has led to increased expectations for policy easing in various economies, including dropping rate hike bets in Australia and easing tightening expectations in Japan.
Despite this optimism, political factors could affect the debt of France and the US. The upcoming US election, with Donald Trump’s rising chances, could lead to higher tariffs and tax cuts, impacting long-term US bonds. Powell emphasised the Fed’s dual mandate of controlling inflation and supporting employment, noting recent data shows inflation cooling and the labour market stabilising, which may prompt rate cuts soon.
JD Vance announced as Trump’s running mate
Asian shares fell despite Wall Street gains, driven by concerns over trade and geopolitics following Donald Trump’s running mate announcement. The dollar strengthened, especially against the Yen, on expectations that Trump’s second term would keep the yen weak.
Investors are adjusting allocations based on Trump’s perceived allies and adversaries, with Japan seen favourably and China negatively. This trend is reflected in persistent outflows from US ETFs tracking Chinese equities. New tariffs on Chinese exports could severely impact China’s growth, while the country’s central bank injected substantial cash into its banking system to maintain liquidity.
Rand will take cues from international news
The Rand lost 1.5% yesterday as the emerging markets traded risk-off in the wake of the assassination attempt on Trump. The Rand is flat at the open as the news on interest rate cuts in the US will help the Rand recover some lost ground. For now with no interest rate cut expected locally on Thursday, the Rand will look at the international front for cues.