Daily Alert – Wednesday 17th July 2024: Fed’s Powell gets dovish

Mark NugentDaily Alert, July 2024

Daily Alert – Wednesday 17th July 2024: Fed’s Powell gets dovish

Good afternoon.

Risk sentiment has been indecisive so far this week.

Yesterday, US Retail Sales exceeded expectations on both the core and headline measures.

CPI came in less than expected in Canada and New Zealand, as the global recovery from high interest rates continues. Today, in the UK, CPI missed to the upside, which is disappointing, but only a wee bit.

I cover two interesting articles. Firstly, Fed Chair Powell on Monday, said that inflation is clearly showing signs of a sustainable move to target. The markets are now suggesting between two and three 25-basis point cuts this year.

The second article may explain the move into US small caps (via the Russell 2000 index). I understood the rationale, (interest rate cuts are more beneficial for small caps as they have more debt), but I didn’t get the timing (why now?). Well, it appears it is so-called short covering. Bets on a fall in small cap prices were at a high and some firms decided to unwind these positions. This requires a buy, and this pushes the price up. This forces others to exit before the price gets too high. Basically, it is a rush for the exit. I won’t be getting involved.

I’ll be back tomorrow to rake over the aftermath of the ECB’s rate setting meeting.

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