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The Fed could be about to disappoint the market: Well Fargo Securities

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Wall Street’s Fed frenzy might not turn out how investors expect.

That’s at least according to Michael Schumacher, global head of rate strategy and managing director at Wells Fargo Securities, who said investors may find themselves disappointed by the Fed’s next move.

Many on the Street expect the U.S. central bank to slash its benchmark interest rate at the next Federal Open Market Committee meeting in late July in response to weakening economic data domestically and around the globe. The CME’s FedWatch tool currently shows traders pricing in a 100% chance of a July cut.

But what the stock market is pricing in with regards to Fed policy might be too aggressive, Schumacher told CNBC’s “Futures Now” on Thursday.

“We think they’ll come in and do two moves, so 50 basis points total [worth of cuts]. The market’s priced for something like 65 or 70 basis points,” Schumacher said. “So, in our view, at least at Wells Fargo, we think the Fed is, in some strange way, going to disappoint the market by not [cutting] as much as it already anticipates.”

Schumacher’s remarks came as Fed Chair Jerome Powell delivered what the strategist saw as “very dovish” comments in a two-day testimony to Congress. In it, Powell said macroeconomic “crosscurrents” including trade tensions and global growth worries were weighing on U.S. economic activity, and that the central bank would “act as appropriate” in response.

“He wants to cut,” Schumacher said, adding that the constructive U.S. consumer price data that were released early Thursday didn’t change the view of the chairman, who had likely seen the data before his testimony.

And, if the Fed decides to go through with a cut, U.S. 10-year Treasury yields could also see some counterintuitive moves, said the strategist, whose year-end target for the 10-year yield is 2.30%. On Friday, it rose to 2.13%.

“We think, in sort of a perverse way, that yields actually go up,” he said Thursday. “Typically, you might say, ‘Well, hey, if the Fed is about to cut, shouldn’t you get a big rally in bonds?’ The answer is yes, but we’ve already had it. There’s been a tremendous rally since November. We think it’s about done.”

But not everyone was on board with the idea of an imminent rate cut.

“Nobody still has convinced me that [Powell]’s going to act, and I don’t think he’s going to,” Anthony Grisanti, founder and president of GRZ Energy, said in the same “Futures Now” segment. “I don’t think he’s going to cut rates at the end of the month.”

Grisanti, who has traded futures for decades, said that between the still-healthy U.S. economic data, the prospects for a U.S.-China trade deal and the pressure Powell has received from President Donald Trump, a cut still seems unlikely.

“If we do get a trade deal, … he’s going to have to totally reverse course and then he loses all credibility whatsoever. And I also think that if he cuts rates, he actually looks like he’s under Trump’s thumb,” the trader said. “So, I think he’s going to look at this situation very carefully. There’s a couple more data points that have to come out.”

U.S. Treasury yields hit a one-month high on Friday after June’s consumer price index topped expectations for inflation.

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Trump at G7 hints at ‘very big trade deal’ with Britain post Brexit

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U.S. President Donald Trump and Britain’s Prime Minister Boris Johnson arrive for a bilateral meeting during the G7 summit on August 25, 2019 in Biarritz, France.

Pool | Getty Images News | Getty Images

SAINT-JEAN-DE-LUZ, France — President Donald Trump met Britain’s Prime Minister Boris Johnson kicking off Group of 7 meetings in the French seaside town of Biarritz.

Clouding the G-7 gathering, which represents the world’s major industrial economies, is the U.K.’s uncertain removal from the European Union.

“He needs no advice, he’s the right man for the job,” Trump said when asked if he had any guidance for Johnson on how to deliver Brexit. “This is a different person and this is a person that is going to be a great prime minister in my opinion,” Trump added of the new prime minister.

In less than three months, Johnson will be at the helm of overseeing U.K.’s removal from the European Union, a move considered to be one of the most significant political and economic changes for the kingdom. And yet, it is still unclear, how, when or if Britain will still leave the European Union. The uncertainty around Brexit has rocked global markets and spooked allies.

Trump said that he would have a major trade deal with U.K. upon leaving the European Union.

“We’re are having very good trade talks between the U.K. and ourselves. We’re going to do a very big trade deal, bigger than we’ve ever had with the UK,” Trump said. “At some point, they won’t have the obstacle of, they won’t have the anchor around their ankle, because that’s what they had. So, we’re going to have some very good trade talks and big numbers,” he said without adding any more detail on a potential deal.

U.S. President Donald Trump and Britain’s Prime Minister Boris Johnson attend a bilateral meeting during the G7 summit on August 25, 2019 in Biarritz, France.

Pool | Getty Images News | Getty Images

Johnson said he was similarly looking forward to future trade deals with the United States and praised Trump’s work on the American economy.

“We’ll be having some pretty comprehensive talks about how to take forward the relationship in all sorts of ways, particularly on trade and we are very excited about that,” Johnson said. “And I just want to actually congratulate the president on everything that the American economy is achieving, it’s fantastic to see that,” he added.

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‘I could declare a national emergency’

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SAINT-JEAN-DE-LUZ, France — President Donald Trump said Sunday he could declare the escalating U.S.-China trade war as a national emergency if he wanted to.

“In many ways this is an emergency,” Trump said at the G-7 leaders meeting of the ongoing trade battle between the world’s top two economies.

“I could declare a national emergency, I think when they steal and take out and intellectual property theft anywhere from $300 billion to $500 billion a year and when we have a total lost of almost a trillion dollars a year for many years,” Trump said, adding that he had no plan right now to call for a national emergency.

“Actually we are getting along very well with China right now, we are talking. I think they want to make a deal much more than I do. I’m getting a lot of money in tariffs its coming in by the billions. We’ve never gotten 10 cents from China, so we will see what happens.”

Trump’s comments come as he met with Britain’s Prime Minister Boris Johnson kicking off Group of 7 meetings in the French seaside town of Biarritz.

Clouding the G-7 gathering, which represents the world’s major industrial economies, are the tit-for-tat tariffs between Washington and Beijing.

U.S. President Donald Trump attends a bilateral meeting with Britain’s Prime Minister Boris Johnson during the G7 summit on August 25, 2019 in Biarritz, France.

Pool | Getty Images News | Getty Images

On Friday, Trump said he would raise existing duties on $250 billion in Chinese products to 30% from 25% on Oct. 1. What’s more, tariffs on another $300 billion of Chinese goods, which start to take effect on Sept. 1, will now be 15% instead of 10%.

When asked if Trump had second thoughts about Friday’s move to escalate the trade war with China, Trump said “Yup.” “I have second thoughts about everything,” he added.

Trump then dismissed concerns that leaders at the G-7 and other U.S. allies would pressure him in ending the trade war with China.

“I think they respect the trade war, it has to happen. China has been, well I can only speak for the United States, I can’t say what they are doing to the U.K. and other places, but from the standpoint of the United States what they’ve done is outrageous that presidents and administrations allowed them to get away with taking hundreds of billions of dollars out every year and putting it into China,” Trump said.

“Our country is doing really well, we had horrible trade deals and I’m straightening them out. The biggest one by far is China,” he added.

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Hong Kong police and protesters clash, ending violence lull

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An anti-extradition bill protester throws Molotov cocktails during clashes at a march to demand democracy and political reforms, at Kowloon Bay, in Hong Kong, China August 24, 2019.

Tyrone Siu | Reuters

Hong Kong protesters threw bricks and gasoline bombs at police, who responded with tear gas, as chaotic scenes returned to the summer-long anti-government protests on Saturday for the first time in nearly two weeks.

Hundreds of black-clad protesters armed with bamboo poles and baseball bats fought with police officers wielding batons on a main road following a march against “smart lampposts” that was sparked by surveillance fears.

The chaotic scenes unfolded outside a police station and a nearby shopping mall as officers in riot gear faced off with protesters who set up makeshift street barricades.

The violence interrupted nearly two weeks of calm in Hong Kong, which has been gripped by a turbulent pro-democracy movement since June.

Police fired tear gas to disperse the crowd after repeated warnings “went futile,” the government said in a statement. By early evening, most of the protesters had dispersed, though clashes flared up in other neighborhoods.

Earlier in the day, some protesters used an electric saw to slice through the bottom of a smart lamppost, while others pulled ropes tied around it to send it toppling and cheered as it crashed to the ground.

The protest march started peacefully as supporters took to the streets to demand the removal of the lampposts over worries that they could contain high-tech cameras and facial recognition software used for surveillance by Chinese authorities.

The government in Hong Kong said smart lampposts only collect data on traffic, weather and air quality.

The protesters chanted slogans calling for the government to answer the movement’s demands. The protests began in June with calls to drop a now-suspended extradition bill that would have allowed Hong Kong residents to be sent to China to stand trial, then widened to include free elections for the city’s top leader and an independent inquiry into alleged police brutality.

“Hong Kong people’s private information is already being extradited to China. We have to be very concerned,” organizer Ventus Lau said ahead of the procession.

The semiautonomous Chinese territory has said it plans to install about 400 of the smart lampposts in four urban districts, starting with 50 this summer in the Kwun Tong and Kowloon Bay districts that were the scene of Saturday’s protest march.

Hong Kong’s government-owned subway system operator, MTR Corp., shut down stations and suspended train service near the protest route, after attacks by Chinese state media accusing it of helping protesters flee in previous protests.

MTR said Friday that it may close stations near protests under high risk or emergency situations. The company has until now kept stations open and trains running even when there have been chaotic skirmishes between protesters and police.

Lau said MTR was working with the government to “suppress freedom of expression.”

Also Saturday, Chinese police said they released an employee at the British Consulate in Hong Kong as scheduled after 15 days of administrative detention.

Simon Cheng Man-kit was detained for violating mainland Chinese law and “confessed to his illegal acts,” the public security bureau in Luohu, Shenzhen, said on its Weibo microblog account, without providing further details.

The Chinese government has said that Cheng, who went missing after traveling by train to mainland China for a business trip, was held for violating public order regulations in Shenzhen, in a case that further stoked tensions in Hong Kong, a former British colony.

The British government confirmed his release.

“We welcome the release of Simon Cheng and are delighted that he can be reunited with his family,” the Foreign and Commonwealth Office said in a statement, adding that Cheng and his family had requested privacy.

Cheng, a Scottish government trade and investment officer, was a local employee without a diplomatic passport.

The Global Times, a Communist Party-owned nationalistic tabloid, said Thursday that he was detained for “soliciting prostitutes.” China often uses public order charges against political targets and has sometimes used the accusation of soliciting prostitution.

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