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Slower US growth means no rate rise for 2019, says Fed

20 March 2019

Sit Fixed Income Senior Vice President Bryce Doty on the impact of the Federal Reserve and USA trade talks with China on the markets.

Bets that the Federal Reserve will this week reinforce the market view that the United States monetary policy tightening cycle is in the rear-view mirror have kept alive the bid on stocks, while the dollar index touched its lowest since March 1.

In recent months, Powell and the Fed have appeared to take a more dovish approach to interest rates amid concerns about slowing global growth - a result of a more than year-long trade war between the US and China and uncertainties about Brexit.

Fed policymakers expect the nation's unemployment rate, now at 3.8 percent, to decline a tick to 3.7 percent by year-end.

USA manufacturing output fell for a second straight month in February and factory activity in NY state hit almost a two-year low this month, offering further evidence of a sharp slowdown in economic growth early in the first quarter.

The pan-European STOXX 600 index rose 0.57 percent and MSCI's gauge of stocks across the globe gained 0.35 percent.

Futures for the Dow and the S&P 500 are up 0.1 percent, while European indexes are trading slightly lower.

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The dollar index fell 0.15 percent, with the euro up 0.15 percent to $1.1353. The currency, which advanced 0.6 per cent last week, traded in a range of 1.3304 to 1.3344.

Joe Manimbo, senior market analyst at Western Union Business Solutions, said: "The Fed did a big about-face on policy".

The Japanese yen strengthened 0.03 percent versus the greenback at 111.40 per dollar.

Among commodities, oil prices were little changed after hitting 2019 highs, maintaining recent strength on the back of expectations for producer club OPEC to continue production cuts.

At 9:07 a.m., the Canadian dollar was trading almost unchanged at 1.3333 to the greenback, or 75.00 US cents.

US crude oil futures were up 0.2 per cent at $58.63 a barrel.

"OPEC and non-OPEC producers are determined to get the supply and demand dynamics better into balance, recognising that USA shale production is going to continue to rise", said Andy Lipow, president of Lipow Oil Associates in Houston.

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Palladium last rose 0.76 percent to $1,595.50 an ounce. Prices have almost doubled since their mid-August lows and have surged more than 25 percent this year.

Spot gold added 0.2 percent to $1,306.31 an ounce.

The dollar index, which slipped to a two-week low on Tuesday in anticipation of a dovish message from the Fed, found some support on Wednesday as investors reached for safe havens following reports of further tension in U.S.

Copper rose 0.56 percent to $6,461.00 a tonne. The yield on the 10-year Treasury note fell to 2.59 percent from 2.61 percent late Tuesday.

Fed members changed their outlook for 2019 from the two increases predicted in December to no movement.

Bond prices rose slightly, sending yields lower.

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Slower US growth means no rate rise for 2019, says Fed