Market Prices 100% Chance of US Rate Cut

Stock Markets

US stocks had a fairly uneventful session with both major indices (Dow Jones and S&P 500) never trading far from the prior day's close. Despite being down at around midday, both indices rallied at the close to finish slightly higher. Although these were small gains, they did represent new record highs for US stocks. The quiet trading comes ahead of earnings season which should generate some bigger stock price moves.

The next federal reserve meeting will occur on 31 July at which point the Federal Open Market Committee is expected to cut rates by at least 25 basis points with a possibility of a 50 basis point cut. According to the CME Fedwatch tool the probability of a 25 basis point cut is 100%. Jerome Powell, the Fed Chairman, has stated that low inflation and business sentiment are concerning and it is clear that the trade wars between China and the US aren't helping economic growth.

Today the Reserve Bank of Australia will release the minutes from the most recent monetary policy meeting. These will be scrutinised to see the reasons for the rate cut and judge the prospect of further rate cuts.

Today's data releases: RBA Monetary Policy Meeting Minutes, US Retail Sales.

Commodities and Currencies

The prospect of lower rates has been a strong driver of gold prices in the recent past with the US dollar price holding comfortably above US$1,400 per ounce. A relatively weak Australian dollar caused the AUD price of gold to surge above AU$2,000 per ounce almost a month ago and so far it has managed to hold above this level.

Earlier in the week WTI oil had risen above US$60 per barrel on Gulf of Mexico shut-ins as a result of tropical storm Barry which has now weakened to a tropical depression. Around 30% of production was shut-in although this will have started coming back online. Both the IEA and OPEC forecast oil surplus for 2020 mainly due to rapidly increasing US production.

The spot price of iron ore is currently flat at US$116.55 a tonne.

The spot price of gold is currently down 0.1% at US$1,416 an ounce.

The AUD is currently up 0.3% at US70.4¢.

This article was written by William O'Loughlin – Investment Analyst, Rivkin Securities Pty Ltd. Enquiries can be made via william.oloughlin@rivkin.com.au or by phoning +612 8302 3633.