Powell Delivers Dovish Testimony

Powell Delivers Dovish Testimony

11 Jul 2019

All eyes were on Fed Chair Gerome Powell on Wednesday as he gave is semi-annual testimony to congress. His first stop was the financial services oversight committee in the House of Representatives. On Thursday Powell will testify in the Senate. Powell all but confirmed a rate cut when the Fed next meets in July. Powell discussed multiple times the uncertainties facing the US economy given the weakness in the global economy and the cross winds faced due to the tariffs. Bond yields tumbled with the 10-year dropping 5-basis points back to 2.04%, and the dollar moved lower paving the way for higher gold prices.

Powell Signals Rate Cut

Fed's Powell confirmed a Fed rate cut at the end of July by warning that uncertainties since the June FOMC. He said that subdued price pressures may be more persistent.  It ignited an equity and bond market rally while the dollar was sold. US shares rallied pushing the S&P 500 above 3K for the first time and all three major indices hit all-time highs. 

Elsewhere Japan's tertiary industries index came in weaker than expected in May, falling 0.2%.  The BOJ, which meets the day before the Fed at the end of the month, is seen to be willing to extend forward guidance and provide accommodation.  With soft price pressures, including yesterday's reported decline in producer prices, the BOJ will struggle to steepen the yield curve.  Australia reported a slight decline in inflation expectations with the index slipping to 3.2% year over year in July versus 3.3% in June. 

Crude Rallies on Storm and Inventories

Crude oil prices surged as Tropical cyclone Two swirled in the Gulf of Mexico. Many installations are evacuating as it appears this will turn into a Hurricane. This comes as the EIA reported a larger than expected draw in crude oil inventories. The Energy Information Administration, crude oil inventories decreased by 9.5 million barrels from the previous week. This compared to expectations of a 3-million-barrel draw. At 459.0 million barrels, crude oil inventories are about 4% above the five-year average for this time of year. Gasoline inventories decreased by 1.5 million barrels while distillate fuel inventories increased by 3.7 million barrels last week. Total petroleum inventories decreased last week by 3.8 million barrels last week.

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