(29 NOVEMBER 2018)DAILY MARKET BRIEF 1:Fed boosts equities, but tariffs worry

Will the US Federal Reserve Bank ease up on its interest-rate hikes? Yesterday’s speech by Fed chief Jerome Powell seemed to suggest that – and it set markets aflame. Both the Dow Jones Industrial Average and the S&P 500 gained 2.50% and 2.30%, their highest rise in eight months, while the Nasdaq rose 2.95%. European equities are following the same trend today, with the Euro Stoxx 50 +0.67%, French CAC 40 +0.87% and UK FTSE 100 +0.76%. Asian equities gains were tempered, with Japanese, Australian and South Korean indexes positive while Chinese shares declined. US President Donald Trump tweeted on the prospect of re-introducing auto tariffs of 25%.

Despite the optimism, we remain cautious, as implementation of 25% auto tariffs could sour the global party. They could lead to rising inflation, higher interest rates and a stronger dollar. US interest rates might be approaching “neutral” levels (near 3%). Today’s release of the Fed’s Open Market Committee meeting minutes of 8 November 2018 will provide details.

EUR/USD gained 0.68% yesterday. Trading along 1.1371, EUR/USD is expected to rise short-term, approaching the 1.1420 range.