By CCN Markets: Dow Jones Industrial Average (DJIA) futures are on a knife-edge on Tuesday as ominous recession warnings ring out around the world.
Despite the warnings, an undercurrent of trader optimism has returned to the markets as Donald Trump upped the pressure on the Federal Reserve to ease monetary policy. Taking to Twitter on Monday he cursed Fed Chairman Jerome Powell and urged the central bank to trigger new stimulus measures.
“Our Economy is very strong, despite the horrendous lack of vision by Jay Powell and the Fed.”
Trump went on to call for a 1 percent cut in the Federal reserve target base rate. He even called for a return to the controversial quantitative easing program – a process whereby the Fed buys government bonds to expand the money supply.
…..The Fed Rate, over a fairly short period of time, should be reduced by at least 100 basis points, with perhaps some quantitative easing as well. If that happened, our Economy would be even better, and the World Economy would be greatly and quickly enhanced-good for everyone!
— Donald J. Trump (@realDonaldTrump) August 19, 2019
Dow futures tick higher on Tuesday
Dow Jones Industrial Average futures swung in and out of negative territory in early trading Tuesday. At 5.55 am ET, Dow futures traded flat at 26,116, pointing to a cautious open on Wall Street.
Will Trump strong-arm the Federal Reserve into action?
The Federal Reserve is politically independent by design and Chairman Jerome Powell does not answer to the president. And despite Trump’s barrage of criticism, Powell maintains that recent Fed policy has not been influenced by the president.
Still, Trump’s “shadow of influence” looms over Powell and the Federal Reserve. The relentless criticism and pressure from the White House shifts the narrative and likely has a subconscious effect on the decision process.
“It’s difficult to refute the idea that there’s a little bit of pressure from the White House coming into play” – Greg McBride, Bankrate.com
Dow rallies on stimulus hopes
Global stock markets surged higher on Monday as central banks all over the planet look to ease monetary policy. In Europe, Germany’s central bank warned the country is about to tip into recession. But instead of striking fear into investors, the recession warning sent the stock market higher on hopes of stimulus.
German finance minister, Olaf Scholz said the government would support a €50 billion support package to keep the economy ticking over. Meanwhile, the European Central Bank is poised with more stimulus “weapons.”
“The European Central Bank [ECB] would probably restart QE [quantitative easing] before the German fiscal taps were at risk of being nudged open” – Peter Chatwell, head of rates strategy, Mizuho.
Global stock markets are booming on the promise of cheap money stimulus. Is this a house of cards? Or just the new financial world order?