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Stocks are dropping as traders fear a shift in the Fed’s rate cutting stance

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  • World stocks dropped on Tuesday as investors braced for the Federal Reserve to signal it could temper or scrap expected cuts to interest rates this month.
  • Stellar non-farm payroll data last week pointed to a robust US labor market, which "could prompt the central bank to use a smaller knife when cutting interest rates," said Neil Wilson, chief market analyst for Markets.com.
  • "This is the key period that will either see the Fed crystallize market expectations for a cut later this month, or gently nudge them back towards a more neutral position," he added.
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World stocks dropped on Tuesday as investors braced for the Federal Reserve to signal it could temper or scrap expected cuts to interest rates this month. German equities tumbled after a BASF profit warning dragged on sentiment.  

Traders will be listening intently to Fed Chair Jerome Powell's speech at the Boston Fed today for signs the central bank is shifting its stance back from "act as appropriate" to "patient."

"It would be unsettling for the Fed to have grown so bearish as they did during their last meeting — hinting at two rate cuts this year — and then do nothing now," said Konstantinos Anthis, head of research at ADSS. "Our central scenario calls for a 'one and done' cut in July and, should this be the case, Powell would probably use his testimony to give market participants a heads-up to avoid a volatile reaction when they actually pull the trigger."

Stellar non-farm payroll data last week, which showed the US economy added 224,000 jobs compared with 72,000 in May, pointed to a robust labor market that "could prompt the central bank to use a smaller knife when cutting interest rates," said Neil Wilson, chief market analyst for Markets.com.

"This is the key period that will either see the Fed crystallize market expectations for a cut later this month, or gently nudge them back towards a more neutral position," he added.

Here's the market roundup as of 9:15 a.m. (4:00 a.m. ET):

  • European equities are sinking. Germany's DAX  plunged 1.2%, led by a 5% drop in BASF shares after the chemical giant warned the US-China trade war would weigh on its profits.
  • The Euro Stoxx 50 was down 0.7%, and Britain's FTSE 100 was down 0.3%.
  • Asian indexes were broadly lower. The Shanghai Composite was down 0.2% and Hong Kong's Hang Seng was down 0.9%, while Japan's Nikkei was up 0.1%.
  • US stocks are set to open lower. Futures underlying the Dow Jones Industrial Average and S&P 500 were down about 0.4%, while Nasdaq futures were down o.7%.
  • Oil prices slid with West Texas Intermediate crude down 0.4% at $57.50, and Brent crude down 0.31% at about $64.
  • Bitcoin surged 6% to about $12,470.

SEE ALSO: Fed chief Jerome Powell just issued the strongest signal yet that the central bank will soon cut interest rates

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