Thursday June 20th

20-06-2019

Dow set to surge 250 points at the open after Fed hints at rate cut, S&P 500 on verge of record

U.S. stock index futures were sharply higher Thursday after the Federal Reserve on Wednesday signaled possible interest rate cuts later this year. Around 7:45 a.m. ET, Dow Jones Industrial Average futures indicated a gain of 250 points at the open. Futures on the S&P 500 and Nasdaq 100 also surged. The S&P 500 was on the verge of reaching an intraday record set in May. The Fed signaled on Wednesday interest rate cuts could be coming, beginning as early as July. Policymakers said they would stand ready to battle growing global and domestic economic risks as they took stock of intensifying trade tensions and growing concerns about inflation. Most Fed policymakers slashed their rate outlook for the rest of the calendar year by approximately half a percentage point in the previous session, while Chairman Jerome Powell said others agree the case for lower rates is building. Many market participants viewed the overall tone from the U.S. central bank as more dovish-than-expected. Traders are now pricing in a 100% chance of a rate cut next month, according to the CME FedWatch tool. “The Fed is not in the business of validating market pricing except when they are both heading in the same direction, and that is what the central bank did yesterday,” said Steven Blitz, chief U.S. economist at TS Lombard, in a note. “Without an economic emergency on his hands - and there isn’t one - we could view yesterday’s no-cut cut as a simple declaration of the Fed’s independence while, at the same time, solidifying in the market the easing the Fed wants priced in.” The Fed’s message sent the 10-year Treasury yield below 2% for the first time since November 2016. Investors bid stock futures higher overnight on the decline in the benchmark for mortgage rates and corporate bonds. The yield stood at 2.8% in January. The dollar also took a hit against other major currencies. The dollar index dropped 0.5% to 96.62, led by a 0.7% slide in the euro. The yen and Canadian dollar also  rose against the U.S. currency. Netflix and Amazon were among the best performers in the premarket, rising 1% each. Facebook, Apple and Alphabet also gained around 1%. These are some of the best-performing stocks of the past 10 years. Low rates have been fuel for the bull market, allowing companies to borrow money cheaply to repurchase stock. Tech stocks have led the gains over the years. On the data front, the number of Americans filing applications for unemployment benefits fell more than expected last week, pointing to underlying market strength despite a sharp slowdown in job growth in May. Initial claims for state unemployment benefits dropped 6,000 to a seasonally adjusted 216,000 for the week ended June 15, the Labor Department said on Thursday. Data for the prior week was unrevised. The Philadelphia Fed manufacturing index in June fell to just 0.3 after registering a four-month high of 16.6 in the prior month. Any reading above zero indicates improving conditions. Economists polled by MarketWatch expected an 8 reading. Leading index figures for May will follow slightly later in the session. Stocks in Asia were higher on Thursday after the U.S. Federal Reserve left interest rates unchanged overnight but opened the door to rate cuts on the horizon. Mainland Chinese shares surged on the day, with the Shanghai compositeadding 2.38% to about 2,987.12 and the Shenzhen component 2.34% higher to 9,134.96, while the Shenzhen composite gained 1.954% to 1,556.60. Hong Kong’s Hang Seng index rose 1.1%. In Japan, the Nikkei 225 gained 0.6% to close at 21,462.86, while the Topix advanced 0.3% to end its trading day at 1,559.90. Over in South Korea, the Kospi closed 0.31% higher to 2,131.29. Over in South Korea, the Kospi closed 0.31% higher to 2,131.29. Oil jumped nearly 3% to above $63 a barrel on Thursday after Iran shot down a U.S. military drone, raising fears of a military confrontation between Tehran and Washington. Also supporting oil were expectations that the U.S. Federal Reserve could cut interest rates at its next meeting, stimulating growth in the world’s largest oil-consuming country, and a drop in U.S. crude inventories. Brent crude, the global benchmark, was up $1.65 at $63.48 a barrel at 8:37 a.m. ET, having risen 3.3% to $63.88 earlier in the session. U.S. West Texas Intermediate crude rose $1.74 to $55.50. Gold prices surged to their highest in more than five years on Thursday after the U.S. Federal Reserve signalled a possible interest rate cut as early as next month, pressuring U.S. Treasury yields and the dollar. Spot gold was up 1.7% at $1,382.61 per ounce, after hitting its highest since March 17, 2014 at $1,386.38 earlier. Gold prices have gained about $80 so far this month. U.S. gold futures jumped 2.8% to $1,386.30 an ounce, after touching their highest since April 2018 at $1,397.70.