- Dow Jones churns chart paper as investors jostle for position ahead of Fed.
- Fed set to hold rates steady this week, markets on the lookout for forward guidance.
- Investors have fully priced in a rate trim in September.
The Dow Jones Industrial Average (DJIA) spun in circles on Monday, churning around 40,600.00 as investors buckle down for the wait to the Federal Reserve’s (Fed) latest rate call. The Fed is broadly expected to hold rates steady on Wednesday, but markets will be keeping an eye out for any adjustments to forward guidance ahead of the key September rate call.
The Fed’s upcoming rate call on Wednesday will be closely watched as investors look for signs that the Fed is on pace to deliver a hotly-anticipated rate cut when the Federal Open Market Comittee (FOMC) convenes again in September. Markets are broadly anticipating at least a quarter-point rate cut on September 18, with rate markets pricing in 90% odds of a 25 bps trim and hopeful 10% bets for a double-cut according to the CME’s FedWatch Tool.
US Nonfarm Payrolls (NFP) are also due on Friday, a key component of the Fed’s employment mandate and investors will be looking for a continued cooling in hiring figures to help keep pushing the Fed into a new rate-cutting cycle in September. ADP Employment Change figures for July will be published on Wednesday, and will serve as a forecast for Friday’s NFP jobs report, albeit a shaky one with a spotty track record for accuracy.
Dow Jones news
The Dow Jones is stuck in the midrange amid quiet Monday trading, with roughly half of the index in the green for the day and the other half easing into the low end. McDonald’s Inc. (MCD) reported a miss in quarterly revenue and earnings per share, but the stock rallied 4.4% and rose above $263.00 per share as the company vows to make more efforts to engage in competition by taking a “forensic look” at pricing options and expects per-restaurant traffic to increase with the addition of value offerings.
Dow Jones technical outlook
The Dow Jones is holding steady near the 40,600.00 handle on Monday, cycling in a tight range for the day as investors grapple with keeping a near-term recovery on-balance. The DJIA briefly tumbled below the 40,000.00 major price handle last week after US markets pulled back from record highs.
The Dow Jones dug in its heels to put in a fresh near-term bottom near 37.395.00, but is still trading on the low side of recent record highs set at 41,371.38. Long-term momentum still leans firmly into the bullish side as the Dow Jones trades well above the 200-day Exponential Moving Average (EMA) at 38,011.80.
Dow Jones daily chart
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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