Stocks Fall as Prospects of Fed Rate Cut Recede
July 08 2019 - 11:59AM
Dow Jones News
By Alexander Osipovich and Paul J. Davies
Stocks fell as investors backed away from hopes that the Federal
Reserve would aggressively cut interest rates to boost the
economy.
Major U.S. stock indexes hit record highs last week before the
Fourth of July holiday, but they tumbled after strong jobs data on
Friday weakened the case for the Fed to cut rates at its next
meeting.
The Dow Jones Industrial Average and the S&P 500 dropped
0.4% in midday trading on Monday, while the Nasdaq Composite slid
0.7%.
Technology was among the worst-performing sectors. Apple fell
2.2%, weighing on the Dow, after Rosenblatt Securities downgraded
the iPhone maker to sell from neutral and predicted its outlook
would deteriorate over the next six to 12 months.
Investors are awaiting Fed Chairman Jerome Powell's testimony on
Capitol Hill on Wednesday and Thursday for hints of how he views
the U.S. economy. Mr. Powell has been under pressure from President
Donald Trump to cut rates.
Futures traders expect a 92% chance of a 0.25% rate cut at the
U.S. central bank's July 31 meeting and an 8% chance of a 0.5% cut,
according to Fed-funds futures traded on CME Group. Last month,
traders put the odds of the bigger rate cut as high as 40%, but
they have dialed back on such expectations amid signs of continued
U.S. economic strength.
"Everybody is kind of wrapping their heads around the
stronger-than-expected jobs report," said Ryan Detrick, senior
market strategist at LPL Financial. "The 50-basis-point crowd has
definitely been shot down."
The Labor Department is also set to release monthly
core-inflation data on Thursday. Inflation has been light, and a
higher-than-expected number could bolster the case for Fed rate
cuts.
Bond prices gained as investors bought safe-haven government
debt. The 10-year U.S. Treasury yield fell to 2.027%, from 2.044%
on Friday. Yields fall as prices rise.
Asian stocks posted steep declines, with the benchmark equity
index in Shanghai dropping 2.6%, while Korea's Kospi was 2.2%
lower.
European stocks were lower, with the Stoxx Europe 600 down 0.2%.
Germany's DAX slipped 0.3% as Deutsche Bank fell 5% following the
launch of yet another restructuring plan, which will see the German
lender cut nearly 20,000 jobs, slash its balance sheet and
significantly shrink its investment bank.
Turkey's lira fell nearly 2% on concerns about central-bank
independence, after President Recep Tayyip Erdogan dismissed the
bank's governor over the weekend.
In commodities, U.S. crude oil rose 0.8% to $57.99 a barrel.
Gold was flat at $1,400.10.
--Joanne Chiu and Shen Hong contributed to this article
Write to Alexander Osipovich at alexander.osipovich@dowjones.com
and Paul J. Davies at paul.davies@wsj.com
(END) Dow Jones Newswires
July 08, 2019 11:44 ET (15:44 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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