The Federal Reserve has concluded its FOMC meeting and, as expected, decided not to cut interest rates. However, market expectations indicate a 100% chance of a rate cut at the next meeting on September 18th. According to the CME fed tool, there's an 86.5% chance of a trim and a 13.5% chance of a drastic cut. The Federal Reserve's projections outline their expectations for various economic indicators. For 2024, they project core PCE inflation at 2.8% and plan to lower interest rates to 5.25%. The Fed anticipates continued rate cuts in the coming years, with projections of 4.25% by the end of 2025 and 3.25% by the end of 2026. Fed Chair Powell stressed that no decision has been made and the focus remains on upcoming CPI and employment data, noting that the economy isn't currently signalling for drastic measures.
EQUITY
With July closing, the market has seen a significant shift known as the "Great Rotation," last month, with investors moving away from big tech stocks into value stocks and small caps. The overall market performance for the year remained positive, but The S&P 500 failed to close above the previous month's high and Nasdaq suffered, while the Dow and smaller cap indices performed better. This rotation was specifically obvious with gains in healthcare, real estate, and financials, while the information technology and communication services sectors lagged behind.
GOLD
Gold prices closed higher in July, slightly lower than previous record highs in May. Expectations of a looser US monetary policy have fed into increased safe-haven demand. Gold advanced in four of the last five months, up 5.7% in the most recent month, with the strongest push being March. The current economic and political climate strongly favours gold prices as mounting risk becomes apparent.
OIL
Oil prices jumped on Thursday, building on Wednesday's almost 4% gains on growing fears of a bigger war in the Middle East compounded by a weaker dollar right after FOMC. Hamas leader Ismail Haniyeh was killed in Iran, while a top Hezbollah commander was taken out in Beirut. These killings have struck fears of a widening conflict with Iran, which could potentially try to block the Strait of Hormuz, a chokepoint for global oil and gas trade. On top of that, U.S. oil stockpiles dropped more than expected, pushing prices even higher.
CURRENCY
The dollar seems to be recovering after receiving a hard blow after FOMC, where the Fed kept rates steady but hinted at a September cut. The euro and pound both took a hit against the dollar, with the pound dropping to a three-week low as everyone waited on the Bank of England's next move with growing expectation of a cut. Japan's yen, though, had a great month, gaining in July, bulk of it came from potential Japan intervention in compounding effect with the growing gap or direction between U.S. and Japanese interest rates that got smaller, leading to carry trade from dollar to yen.
