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FTSE gains ground as Federal Reserve’s Bullard calls for rate cut

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The FTSE has posted gains on Tuesday. Currently, the FTSE index is trading at 7,215, up 0.42% on the day. In economic news, British Construction PMI disappointed, with a score of 48.6, indicating contraction. This missed the estimate of 50.6 points.

British PMI scores are closely watched by investors, as they are key indicators of the health of key sectors in the economy. April numbesr have been week, 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.

The markets have priced in a rate cut by the Federal Reserve later this year, disregarding recent comments from the Fed that the next rate move could go in either direction. The markets received some support on Monday, when the president of the St. Louis Fed came out in favor of a cut on Monday. James Bullard was crystal clear in his message, saying that the Fed might have to lower rates shortly due to low inflation and the ongoing trade war with China. Bullard warned that the Fed may have to deal with “an economy that is expected to grow more slowly going forward, with some risk that the slowdown could be sharper than expected due to ongoing global trade regime uncertainty“. 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. These dovish comments have cooled sentiment towards the U.S. dollar on Tuesday, while equity markets have responded with sharp gains.

Fed’s Bullard Signals a Rate Cut may be Warranted Soon; Bonds Rally as the Dollar Falls

Commodities Weekly: Gold shines on safe haven flows

European update – Central banks offer reprieve

Economic Calendar

Monday (June 3)

  • 4:30 British Manufacturing PMI. Estimate 52.5. Actual 49.4
  • 10:00 US ISM Manufacturing PMI. Estimate 53.0. Actual 52.1

Tuesday (June 4)

  • 4:30 British Construction PMI. Estimate 50.6

*All release times are DST

*Key events are in bold

FTSE, Tuesday, June 4 at 12:00 DST

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

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