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Market rises despite steady Fed, Iran

By SCOTT REEVES in New York | China Daily Global | Updated: 2019-06-21 22:44

Traders work at the New York Stock Exchange in New York City on Thursday. [Photo/VCG]

Major US stock indices rose Thursday, with the S&P 500 hitting an all-time high, after the Federal Reserve held interest rates steady and indicated it could begin cutting rates as soon as next month in response to slowing domestic and global growth.

The Dow Jones Industrial Average closed at 26,753.17, up 249.17 points. The Nasdaq closed at 8051.34, up 64.02 points while the S&P 500 closed at 2954.18, up 27.72 points and eclipsing April's previous high of 2945.83.

The markets' response to the Fed action on Wednesday far outweighed growing tensions in the Middle East where Iran's Revolutionary Guard said it shot down an "intruding American spy drone" over the country's territory.

The US confirmed the incident, but said it occurred in international airspace over the Strait of Hormuz, a vital oil shipping route. Initially, Trump tweeted "Iran made a very big mistake" but quickly downplayed the incident and said the shoot-down may have been a "mistake" by someone "stupid."

A top commander in Teheran said Iran was "ready for war."

The escalating tensions between the two countries drove oil prices higher.

Crude oil rose 4.3 percent on London's ICE Futures exchange to $64.45, while West Texas Intermediate future rose 4.16 percent to $54.09 a barrel on the New York Mercantile Exchange.

The stock of major US oil producers rose. ExxonMobil closed at $76.61 a share, up $1.29. Chevron closed at $124.28, up $1.39. Conoco-Phillips closed at $60.70, up $1.05.

"Our economic view remains for growth slightly above trend, a gently declining unemployment rate and a rebound in core personal consumption expenditures inflation to (about) 2 percent by early 2020," Jan Hatzius, an analyst at Goldman Sachs said in a research note to investors.

"We now expect (rate) cuts in July and September. Our base case is for moves in (one-quarter point) increments but a (half-point) cut is possible if the news flow disappoints," he added.

Earlier this week, Hatzius correctly predicted the Fed would hold rates unchanged at 2.25 to 2.5 percent while being open to possible cuts later this year. The Federal Open Market Committee now projects at least one cut this year.

Some analysts cited May's weak jobs report as the need for a Fed rate cut. The US economy added 75,000 jobs in May for the 104th consecutive month of employment gains, but hiring slowed. Analysts expected companies to add 180,000 jobs last month, but employers hired only 41.6 percent of the anticipated total.

The unemployment rate remained unchanged at 3.6 percent, a 50-year low, and wages remained strong as companies competed to attract and retain workers.

The number of applications for state unemployment benefits fell to a seasonally adjusted 216,000 for the week ended June 15, the US Labor Department reported. Economists forecast claims would total 220,000. Last month, US President Donald Trump raised tariffs on Chinese imports valued at $200 billion to 25 percent from 10 percent and threatened to impose tariffs on another $300 billion worth of goods.

China responded by imposing tariffs totaling $60 billion on US goods. The tit-for-tat between the world's two largest economies has disrupted markets for cars, technology, consumer electronics, clothing and farming.

The 14th meeting of the G20 will be held June 28-29 in Osaka, Japan. Presidents Trump and Xi Jinping plan to meet face-to-face.

Australia cut rates to 1.25 percent earlier this month. Canada's rate is 1.75 percent and Britain's is 0.75 percent. Japan's rate is negative 0.1 percent. The European Central Bank's target rate is negative 0.4 percent and may dip further.

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