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Research Market strategy
by Swissquote Analysts
Morning News

Fed Holds Rates Steady, Hints at Possible Cuts if Outlook Dims

Topic of the day

Federal Reserve officials held their benchmark interest rate steady on Wednesday, but hinted they would cut rates in the months ahead if the economic outlook weakens. "The case for somewhat more accommodative policy has strengthened," Fed Chairman Jerome Powell said at a news conference after the central bank announced its decision. While the Fed's rate-setting committee expected the economy's expansion to continue, "uncertainties about this outlook have increased," it said in a statement. "In light of these uncertainties and muted inflation pressures, the committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion." Nine of 10 members of the rate-setting committee voted to maintain the federal-funds rate in a range between 2.25% and 2.5%. St. Louis Fed President James Bullard dissented in favor of lowering rates, the first dissent since Fed Chairman Jerome Powell took over as chairman of the central bank in February 2018. Interest-rate projections released Wednesday showed eight of 17 officials project the Fed will need to cut the benchmark rate this year, with seven of those officials seeing two quarter-point reductions. Only one official projected the Fed would need to raise interest rates this year, with the remaining eight seeing that rates would stay unchanged. A majority of officials projected the benchmark rate would sit below its current level by the end of 2020.

Swiss stocks

The SMI closed down 0.3 percent on 9,962 points Wednesday. Novartis fell 0.5 percent, Nestle slid 1.1 percent and Roche closed virtually unchanged. These stocks’ weightings will be capped at 18 percent from Friday. China-focused luxury goods makers Swatch (up 0.8 percent) and Richemont (up 0.3 percent) were still in demand, buoyed by hopes of a solution to the US-China trade dispute when US President Donald Trump meets Chinese President Xi Jinping at the G20 Summit next week. Semiconductor maker AMS surged 3.4 percent. Market participants said hopes of monetary easing lent good upward potential to oversold cyclical stocks.

International markets

Europe

Europe's main indexes were mixed as they closed, with traders awaiting the Federal Reserve meeting, an analyst said. "Judging by the drive lower in U.S. government bond yields recently, traders are anticipating dovish language from the Fed," he added. Italy's FTSE MIB and France's CAC 40 both closed higher, up 0.4% and 0.2%, respectively. Germany's DAX ended the day 0.2% lower and Spain's IBEX 35 closed 0.1% down. The Stoxx Europe 600 ended the day flat. Telecom Italia increased by 0.8 percent. It was said that Vivendi and Elliott are seeking a compromise in the dispute over the future of the company. Airline shares were shunned on Wednesday. Lufthansa's profit warning is likely to be followed by further warnings from the industry, according to retailers. "If it doesn't work for the industry leader, it's not a good sign for the industry as a whole," one participant said. HSBC had reduced a whole series of airline shares on the reporting day, including Air France and IAG. Air France lost 3.6 per cent, IAG 3.2 per cent, Easyjet 3.6 per cent, Ryanair 0.5 per cent and Lufthansa 1.4 per cent.

United States

Major U.S. stock indexes advanced intraday after the Federal Reserve left interest rates unchanged but hinted it could slash rates in the months ahead. U.S. stocks rose to session highs after the decision, which showed eight of 17 officials projecting the Fed would need to cut the benchmark rate this year. A majority of officials forecast that the benchmark rate would be below its current level by the end of 2020. Investors parsed Fed Chairman Jerome Powell's statements after the statement was released for the central bank's economic outlook and bent on cutting rates. The Dow added 68 points, or about 0.3%. The S&P 500 added 0.3% and the Nasdaq Composite gained 0.2%. Investors weren't in a rush to make big wagers ahead of the decision Wednesday, with U.S. indexes slightly negative before its release. "I think there's probably room for U.S. markets to move higher, in particular, equities," said a portfolio manager at Thornburg Investment Management. "I think they probably are more likely to cut [interest rates] in the near future."

Asia

The Fed's moves and Mr. Powell's comments helped support broad gains for Asian stocks. In Tokyo, the Nikkei 225 index gained 0.6 percent, only slightly slowed by the yen's appreciation. In Hong Kong, the HSI rose by 1 percent. The clear daily winner, however, is Shanghai with a plus of 2.6 percent of the Shanghai Composite.

Bonds

U.S. government bond prices rose as investors responded to signals from the Federal Reserve that it could lower interest rates in the coming months if the economic outlook worsens. In recent trading, the yield on the benchmark 10-year U.S. Treasury note was 2.046%, according to Tradeweb, compared with 2.084% before the Fed released its policy statement and 2.060% Tuesday.

Analysis

HSBC senkt Easyjet, IAG, Air France-KLM und Finnair
Barclays erhöht Adobe-Ziel auf 330 (304) USD - Overw.
UBS senkt Lufthansa-Ziel auf 18,55 (26,50) EUR - Buy
UBS erhöht Ziel Fresenius Medical auf 92 (82) EUR - Buy


Produced by MBI Martin Brückner Infosource GmbH & Co. KG on behalf of Swissquote. All news is acquired with journalistic accuracy. No liability is assumed for delays or errors.

 
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