FTSE pauses after Fed rate comments boost equities

The FTSE has paused on Wednesday, after climbing close to 1.0% on Tuesday. Currently, the FTSE index is trading at 7,218, up 0.05% on the day. In economic news, British Services PMI improved in May to 51.0, above the estimate of 50.6.

Equity markets were up sharply on Tuesday, after comments from senior Federal Reserve officials strongly hinted at a rate cut. In recent months, the Fed has tried to present an aura of neutrality regarding rate moves, but has taken a sharp U-turn this week in favor of an easing bias. On Tuesday, Fed chair Jerome Powell said that the Fed would “act as appropriate to sustain the expansion”, and analysts noted that he did not mention his “patient” approach to monetary policy, which has been a buzzword in Powell’s recent comments. This comes on the heels of comments from James Bullard, president of the St. Louis Fed. Bullard stated that the Fed might have to lower rates shortly due to low inflation and the ongoing trade war with China. Bullard added that the current benchmark rate, which is at a range of 2.25% to 2.50%, is too high for current economic conditions, and recommended lowering rates in order to stabilize the economy.

British PMI scores are closely watched by investors, as they are key indicators of the health of key sectors in the economy. May numbers have been soft, as PMI data pointed to contraction in the manufacturing and services sectors. Construction PMI fell to 48.6, its third decline in four months. This followed a manufacturing PMI of 49.4, marking the first contraction since July 2016. Manufacturing news from the U.S. also disappointed, as ISM Manufacturing PMI slowed to 52.1, down from 53.0 a month earlier. This was the PMI’s weakest reading since November 2018. Global demand has fallen off due to trade tensions, and unless this situation improves, manufacturing in the U.K and the U.S. could continue to head downwards.

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Economic Calendar

Wednesday (June 5)

  • 4:30 British Services PMI. Estimate 50.6. Actual 51.0

*All release times are DST

*Key events are in bold

FTSE, Wednesday, June 5 at 10:30 DST

Previous Close: 7,184 Open: 7,162 High: 7,138 Low: 7,225 Close: 7,215

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Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.