- US stocks were choppy and ultimately closed slightly firmer on month/quarter end in which the S&P 500 led the gains and the majority of sectors closed in green with outperformance in Energy, Communication Services, and Real Estate, while Materials, Consumer Discretionary and Staples underperformed. The highlight of the session was comments from Fed Chair Powell who hinted at a return to 25bp rate cuts after the 50bp move in September as he noted that the Fed is not in a rush to cut rates quickly and if the economy evolves as expected, that would mean two rate cuts by year-end for a total of 50bps, implying 25bp in November and December. As such, the downplaying of another oversized 50bp cut saw stocks and bonds tumble while the Dollar rallied.
- USD trended higher throughout the day and caught a strong bid after Fed Chair Powell's hawkish remarks at the NABE conference where he stated that the Fed is not in a hurry to cut rates quickly and if the economy evolves as expected, that would mean two more cuts this year for a total of 50bps.
- Looking ahead, highlights include New Zealand Building Permits, Australian Manufacturing PMI (Final), Japanese Unemployment Rate & BoJ Tankan, Regional PMIs, Australian Building Approvals & Retail Sales, BoJ Summary of Opinions, Holiday Closures in South Korea, Hong Kong and Mainland China.
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LOOKING AHEAD
- Highlights include New Zealand Building Permits, Australian Manufacturing PMI (Final), Japanese Unemployment Rate & BoJ Tankan, Regional PMIs, Australian Building Approvals & Retail Sales, BoJ Summary of Opinions, Holiday Closures in South Korea, Hong Kong and Mainland China.
- Click for the Newsquawk Week Ahead.
US TRADE
- US stocks were choppy and ultimately closed slightly firmer on month/quarter end in which the S&P 500 led the gains and the majority of sectors closed in green with outperformance in Energy, Communication Services, and Real Estate, while Materials, Consumer Discretionary and Staples underperformed. The highlight of the session was comments from Fed Chair Powell who hinted at a return to 25bp rate cuts after the 50bp move in September as he noted that the Fed is not in a rush to cut rates quickly and if the economy evolves as expected, that would mean two rate cuts by year-end for a total of 50bps, implying 25bp in November and December. As such, the downplaying of another oversized 50bp cut saw stocks and bonds tumble while the Dollar rallied.
- SPX +0.42% at 5,762, NDX +0.26% at 20,061, DJIA +0.04% at 42,330, RUT +0.24% at 2,230.
- Click here for a detailed summary.
NOTABLE HEADLINES
- Fed Chair Powell said policy will move over time towards a more neutral stance if the economy evolves broadly as expected, while he added that risks are two-sided and decisions will be meeting-by-meeting. Powell said the Fed is not in a hurry to cut rates quickly and will be guided by data, as well as noted that the rate cut process will play out 'over some time' with no need to go fast. Furthermore, he said the Fed will take everything into account in the November rate decision and if the economy evolves as expected that would mean two more cuts this year for a total of 50bps.
- Fed's Bostic (2024 voter) said he is open to another 50bp rate cut if the labour market shows unexpected weakness and stated the baseline case is for an 'orderly' easing with inflation expected to continue slowing and job market to hold up. Furthermore, he pencilled in just a single further 25bp rate cut this year beyond the 50bps in September and said his baseline outlook through the end of 2025 would see a policy rate of between 3.00-3.25% (vs Fed median of 3.40%).
- Fed's Goolsbee (2025 voter) is worried about a possible continued port shutdown and said the Fed is cutting rates because the economy has normalised, according to a Fox Business News interview. Goolsbee sees 'cautionary' indicators on the job market and said the Fed cannot wait for the job market to weaken before acting, while he added the most important thing about rate cuts is the process of easing, as well as noted there will be a lot of rate cuts and inflation is coming in close to target.
DATA RECAP
- US Chicago PMI (Sep) 46.6 vs. Exp. 46.1 (Prev. 46.1)
- US Dallas Fed Manufacturing Business Index (Sep) -9.0 (Prev. -9.7)
FX
- USD trended higher throughout the day and caught a strong bid after Fed Chair Powell's hawkish remarks at the NABE conference. The Fed Chair said that the Fed is not in a hurry to cut rates quickly, and if the economy evolves as expected, that would mean two more cuts this year for a total of 50bps. This implies 25bps in both November and December.
- EUR wiped out its early gains and retreated for most of the session after failing to sustain a brief incursion above the 1.1200 level.
- GBP was choppy following weaker Final Q2 GDP data although GBP/USD ultimately returned to flat territory and posted a third straight monthly gain.
- JPY weakened against the dollar with USD/JPY back at the 143.00 handle amid higher US yields following Fed Chair Powell's comments.
FIXED INCOME
- T-notes were lower and the curve bear flattened after Fed Chair Powell leaned back against another oversized rate cut in 2024.
COMMODITIES
- Oil prices were choppy in response to geopolitics, OPEC+ reports and Fed Chair Powell, but ultimately settled flat.
- Russia doesn't rule out extending the OPEC+ agreement beyond 2025 if the market situation requires it, according to TASS citing Russian Deputy PM Novak. Furthermore, it was stated that OPEC+ countries are purposefully temporarily ceding oil market share to prevent shortages that could be 5 years from now.
- Libyan oil official reportedly expects the halted output to commence on Tuesday, according to a Bloomberg report.
GEOPOLITICAL
MIDDLE EAST
- Israel conducted artillery shelling on southern Lebanese towns in preparation for the launch of the ground operation, while the ground offensive is expected to start from the eastern sector in southern Lebanon, according to Sky News Arabia citing their correspondent. There were reports shortly after that Israeli tanks infiltrated the village of Rmeish in southern Lebanon, according to Al Arabiya citing a correspondent.
- Israeli military warned residents in Beirut suburbs to evacuate due to imminent strikes on Hezbollah targets.
- Israeli officials earlier said they were preparing for a limited group operation in villages in southern Lebanon, according to Al Arabiya. It was also reported that Israel informed Washington it is planning a limited ground operation in Lebanon that could start imminently, according to the Washington Post. Furthermore, a senior US official told Fox that Israel will launch a "limited" ground incursion into South Lebanon, while the official added that an incursion is imminent and will be smaller in scale than in 2006 and last a shorter period of time.
- Israel is reportedly preparing for a significant expansion of the war including an "exchange of blows" with Iran soon, according to Israel's Channel 13 correspondent Moriah Ashraf via Telegram.
- Israeli military said it destroyed a warehouse of surface-to-air missiles located 1.5km from Lebanon's international airport.
- Israeli media reported that a cruise missile from Iraq hit a military base near Tiberias, according to Tehran Times.
- Hezbollah claimed an attack on Israel using a "nour missile" which is the first time it used a ballistic missile, according to a statement.
- Hezbollah deputy chief said they will confront any possibility and are ready if Israel decides to enter by land, while he added that Hezbollah forces are ready for a ground incursion and he is confident Israel will not achieve its aims. Furthermore, he said they have missiles that Israel does not know about and will be ready for launch.
- Hezbollah has not asked for any help from Iran but they are at their side, according to Reuters citing Hezbollah lawmaker Hassan Fadlallah.
- Lebanese troops have pulled back to 5km north of the border, according to Reuters citing Lebanese security sources.
- Lebanon's caretaker PM said that they are ready to implement the 1701 agreement and send the Lebanese army to the south of the Litani River.
- Syrian Observatory said Israeli forces moved near the border strip with the occupied Syrian Golan, according to Sky News Arabia.
- Yemen's Houthis said they will escalate military operations in response to Israeli attacks.
- The Pentagon said the US is to send a 'few thousand' additional troops to the Middle East to boost security and defend Israel if needed, according to AP.
OTHER
- Russia plans to increase defence spending by 30% by 2025.
ASIA-PAC
NOTABLE HEADLINES
- China’s FX regulator expects the current account surplus to remain at a reasonable and balanced level in Q2, while it was noted that cross-border and capital flows are expected to stay balanced and FX reserves are expected to remain stable.
- China’s Agriculture Ministry said it will improve subsidy policies for soybean processing, and enhance policy-driven storage and market purchases, while it will facilitate the smooth sale of domestic soybeans.
EU/UK
NOTABLE HEADLINES
- ECB President Lagarde said inflation might temporarily increase in the fourth quarter of this year as previous sharp falls in energy prices drop out of the annual rates. Lagarde added that policy rates will be kept sufficiently restrictive for as long as necessary to achieve their aim and that they are not pre-committing to a particular rate path. Furthermore, ECB's Lagarde said the next inflation reading is likely to be below baseline and that they are not going to wait until everything is at 2% to reduce rates.
- Germany is reportedly poised to abandon forecasts for economic growth this year and forecasts economic stagnation this year at most, according to Bloomberg sources.
DATA RECAP
- UK GDP QQ (Q2) 0.5% vs. Exp. 0.6% (Prev. 0.6%)
- UK GDP YY (Q2) 0.7% vs. Exp. 0.9% (Prev. 0.9%)
- German CPI Prelim MM (Sep) 0.0% vs. Exp. 0.0% (Prev. -0.1%)
- German CPI Prelim YY (Sep) 1.6% vs. Exp. 1.7% (Prev. 1.9%)
