Goldman, UBS warn markets are mispricing Fed, says no rate cut imminent

[HONG KONG] Traders need to rein in their expectations for the Federal Reserve to cut interest rates in the near term, said Axel Weber, chairman of Swiss bank UBS Group and a former Bundesbank president.

"The market has overpriced the amount of rate cuts the Fed will do," Mr Weber said on a panel discussion during a meeting of the Institute of International Finance in Tokyo. "There is no imminent rate cut."

That was a view shared by Goldman Sachs Group president John Waldron, who appeared alongside Mr Weber.

"It worries me how much influence the Fed has on market sentiment right now," Mr Waldron said. "The markets are over pricing what the Fed is likely to do in the near term, and I think it will be really interesting to see how the Fed weighs sentiment versus data."

Stocks rallied the most since January on Tuesday after Fed chairman Jerome Powell signaled an openness to cut interest rates if necessary. Traders have priced in more than a 90 per cent chance of a rate cut in September with more to follow.

TRADE WAR

On the US and China trade war, Mr Waldron said markets remain overly hopeful that the world's two biggest economies can agree on a deal in the near term. President Donald Trump and his Chinese counterpart Xi Jinping are expected to meet at the G-20 summit in Osaka, Japan, later this month.

"I think the market may be too optimistic about what's achievable at this G-20 summit," he said. "The best you can hope for is that negotiations are put back on the table, I don't see a scenario where there is a deal."

Appearing on the same panel, Martin Gilbert, vice chairman of Standard Life Aberdeen Plc, said investors are only starting to accept that the trade conflict has a long way to run.

"The trade dispute with China is going to last longer than the market is pricing in," he said. "It's just beginning to dawn on a lot of our clients that times are going to be really tough."

BLOOMBERG