Financial markets have eliminated the odds of any economic easing by the Federal Reserve in June. This prudent approach reflects investor’s attention while seeking greater economic clarity. The central bank would effectively be delaying any genuine easing action indefinitely. Economists expect a historic plunge in economic numbers in the second half of the year to force their hand.
In a dramatic reversal, the Federal Reserve just raised a new fiscal tariff on foreign cinema. This decision suddenly put an end to Wall Street’s nine-day winning streak. This surprise turn of events had analysts scratching their heads as to where U.S. financial markets are headed from here. In contrast to this negative news, Asian and European markets have both advanced further, pointing to a mixed global economic picture.
As negotiations continue, a 90-day truce in the current U.S.-China tariff war is under consideration. Experts across the political spectrum agree that a detailed U.S.-China détente by Day 90 is improbable at best. Past precedent tells us that the last tariff war lasted 18 months. Given that these tensions run deeper and are more complex than this time last year, a quick resolution doesn’t appear probable.
In the meantime countries like India, Japan and ASEAN hubs are already poised to start making bilateral agreements. These agreements will take place long before any formal arrangement is reached between the U.S. and China. While these agreements can go a long way to provide immediate relief, they cannot solve the larger trade tensions that are still very much in play.
And with inflation still the Fed’s overriding worry, any hope that Federal Reserve Chair Jerome Powell’s hawkish stance could be shaken is likely a distant dream. Consequently, quasi-resolutionary experts have declared June to be off the table for any economic easing steps. Instead, they view July or September as more realistic months for possible increases. Those in Washington, D.C., expect the policy environment this summer to be the most chaotic in recent memory.
U.S. equities entered a rocky stretch and snapped their multi-session winning streak. At the same time, Asian currencies rocketed ahead, propelled by exuberant hopes over trade deals. That explosive rally is one of the most powerful moves in years for these currencies. Expectations for the impending easing of tariff tensions are giving their momentum a nice tailwind.
Meanwhile, gold prices have skyrocketed over $3,300. Public investors in Asia are chomping at the bit to capitalize on economic downturns. The precious metal’s spike highlights a new shift for investors, who are increasingly gravitating towards safe-haven assets in the face of surging geopolitical fears.
Market participants are looking to Wednesday’s Fed forward guidance. All eyes are on the Federal Reserve to see how the central bank will address these new difficult economic puzzles. These next announcements will provide important clues as to what the Fed is likely to do going forward. These findings could prove to be revolutionary in domestic and global markets.