Dow Jones Industrial Average gains after US PMI miss reignites rate cut hopes
- Dow Jones tests 38,500.00 as US equities climb.
- US PMIs weakened, bolstering hopes for a Fed rate trim.
- Key US GDP and PCE inflation data still on the table for the week.
The Dow Jones Industrial Average (DJIA) climbed on Tuesday after US Purchasing Managers Index (PMI) figures softened unexpectedly, bringing broad-market hopes for an earlier-than-expected rate cut from the US Federal Reserve (Fed) back to the forefront.
The US Manufacturing PMI slid to a four-month low of 49.9 on Tuesday, slipping back from the previous 51.9. The Services PMI also declined, falling to 50.9 from 51.7. Both PMI components were expected to tick upwards to 52.0. With a softening PMI outlook, investors will watch US Gross Domestic Product (GDP) figures slated for Thursday.
The Fed’s favored method of gauging inflation, the Personal Consumption Expenditure (PCE) Price Index, will print on Friday to round out the trading week. Equities will look for further signs of slowing in the US domestic economy to gauge the likelihood of the Fed getting pushed into a rate cut cycle than currently expected.
US GDP is currently forecast to cool off to 2.5% for the first quarter on an annualized basis, while Friday’s Core PCE Price Index is expected to hold steady at 0.3% MoM in March.
Dow Jones news
Despite broad-market gains for US equities, the Dow Jones remains tepid compared to the other mega indexes, with the DJIA gaining around seven-tenths of a percent. Of the 30 securities that comprise the Dow Jones index, nearly a third of them remain in the red on Tuesday, with Walmart Inc. (WMT) leading the losers. WMT is down around 2.5% percent on the day, trading near $58.60 per share.
Verizon Communications Inc. (VZ) is recovering from Monday’s downside, climbing nearly 3.5% to trade near $40.00 per share. VZ is followed by American Express Co. (AXP), gaining 2.5% to trade near $238.75 per share.
Dow Jones technical outlook
The Dow Jones is testing the 38,500.00 handle on Tuesday, with the day’s early low priced in at 38,206.51. The major equity index is up nearly eight-tenths of a percent on the day.
Tuesday’s upside leaves the Dow Jones on pace to close in the green for a third straight trading day as the index climbs from a near-term swing low around 37,600.00. The index is still down from March’s highs just shy of the 40,000.00 major handle, but the index is firmly bullish in the long-term. The Dow Jones is trading well above major technical support from the 200-day Exponential Moving Average (EMA) at 36,687.91.
Dow Jones five minute chart
Dow Jones daily chart
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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