- US stocks were firmer in a continuation of Wednesday's gains and risk-on trade with seemingly added tailwinds from an article by WSJ's Timiraos titled "The Fed’s Rate-Cut Dilemma: Start Big or Small?" which did not offer any sources but quoted a former senior adviser to Powell who said the amount of cuts over the next few months “is going to be a lot more important than whether the first move is 25 or 50", which he thinks is a close call. Attention was also on the ECB which cut rates as expected, while the latest data releases did little to shift the dial as PPI figures printed mixed and jobless claims matched estimates.
- USD was weighed on by the risk-on sentiment with mixed PPI and in-line jobless claims having little sway on the buck nor the likelihood of the Fed cutting by 25bps next week, while the calendar for Friday is light with only UoM preliminary data the only notable releases for the US.
- Looking ahead, highlights include New Zealand PMI, Singapore Unemployment Rate & Japanese Industrial Production Final Reading for July.
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LOOKING AHEAD
- Highlights include New Zealand PMI, Singapore Unemployment Rate & Japanese Industrial Production Final Reading for July.
- Click for the Newsquawk Week Ahead.
US TRADE
- US stocks were firmer in a continuation of Wednesday's gains and risk-on trade with seemingly added tailwinds from an article by WSJ's Timiraos titled "The Fed’s Rate-Cut Dilemma: Start Big or Small?" which did not offer any sources but quoted a former senior adviser to Powell who said the amount of cuts over the next few months “is going to be a lot more important than whether the first move is 25 or 50", which he thinks is a close call. Attention was also on the ECB which cut rates as expected, while the latest data releases did little to shift the dial as PPI figures printed mixed and jobless claims matched estimates.
- SPX +0.75% at 5,596, NDX +0.97% at 19,423, DJIA +0.58% at 41,097, RUT +1.22% at 2,129.
- Click here for a detailed summary.
NOTABLE HEADLINES
- US Treasury announced proposed rules for a 15% corporate alternative minimum tax on companies with USD 1bln in annual profits, limiting income deductions and credits.
- Democratic candidate Harris leads Republican candidate Trump 47%-42% in the latest Reuters/Ipsos poll, while among registered voters who heard at least something about Tuesday's debate, 53% said Harris won the debate while 24% said Trump.
- Republican Presidential candidate Trump said there will not be another debate with VP Harris.
- Georgia judge dismissed three criminal counts of election interference in case against Presidential candidate Donald Trump and allies, according to a court filing.
- WSJ's Timiraos released an article titled “The Fed’s Rate-Cut Dilemma: Start Big or Small?” which cited a former senior adviser to Fed Chair Powell, Jon Faust, who said the amount of cuts over the next few months will be a lot more important than whether the first move is 25 or 50, which he thinks is a close call.
- WSJ's Timiraos said economists who map the CPI and PPI into the PCE think core inflation using the Fed's preferred gauge will be around 0.13-0.17% in August, extending a streak of mild, target-consistent monthly readings.
DATA RECAP
- US PPI Final Demand MM (Aug) 0.2% vs. Exp. 0.1% (Prev. 0.1%)
- US PPI Final Demand YY (Aug) 1.7% vs. Exp. 1.8% (Prev. 2.2%, Rev. 2.1%)
- US PPI exFood/Energy MM (Aug) 0.3% vs. Exp. 0.2% (Rev. -0.2%)
- US PPI exFood/Energy YY (Aug) 2.4% vs. Exp. 2.5% (Prev. 2.4%)
- US Initial Jobless Claims 230k vs. Exp. 230k (Prev. 227k, Rev. 228k)
- US Continued Jobless Claims 1.85M vs. Exp. 1.85M (Prev. 1.838M, Rev. 1.845M)
FX
- USD was weighed on by the risk-on sentiment with mixed PPI data and in line jobless claims had little sway on the buck nor the likelihood of the Fed cutting rates by 25bps next week, while the calendar for Friday is light with only UoM preliminary data the only notable releases for the US.
- EUR took advantage of the dollar weakness and steadily edged higher from a platform near the 1.1000 level despite the ECB's rate cuts which were widely expected.
- GBP gained throughout the session and GBP/USD reverted to the 1.3100 handle alongside outperformance in most activity currencies.
- JPY benefitted from the softer buck which saw USD/JPY breach beneath the 142.00 handle.
- Banxico Deputy Governor Heath said it's "false" that the bank is injecting dollars into the market to keep the peso from depreciating further.
FIXED INCOME
- T-notes saw broad-based selling following a mixed PPI report and a weak 30yr auction.
COMMODITIES
- Oil prices gained amid the broader risk-on sentiment and production shut-ins due to Francine.
- IEA OMR cut its 2024 world oil demand growth forecast to 900k BPD (prev. 970k BPD) and sees 2025 demand growth at 950k BPD, while it stated the rapid decline in global oil demand growth in recent months, led by China, has fuelled a sharp sell-off in oil markets. Furthermore, it said that China is leading rapid decline and outside of China, oil demand growth is tepid at best.
- BSEE noted 42% of oil production at US Gulf of Mexico shut due to storm Francine.
- Shell (SHEL LN) have had to curb production at Appomattox, Mars, Ursa, and Olympus due to downstream issues amid Francine.
GEOPOLITICAL
OTHER
- US and UK governments are discussing allowing Ukraine to deploy British cruise missiles backed by US navigational data to conduct long-range strikes inside Russian territory, according to Bloomberg citing sources.
- Russia's Kremlin said permission for Ukraine to strike Russia territory increases the West's involvement in the conflict in Ukraine and will lead to a reaction by Moscow, according to TASS.
- Ukrainian President Zelenskiy said a Russian missile hit a vessel in the Black Sea carrying grains en route to Egypt, while the vessel had already left Ukrainian waters when it was struck and there were no casualties.
- UK MoD said the UK navy and air force shadow Russian ships and intercept Russian aircraft to protect UK national security.
- US President Biden is to host a quad summit with leaders of Australia, India, and Japan in Delaware in September, according to the White House.
ASIA-PAC
NOTABLE HEADLINES
- Chinese President Xi said all regions and departments should do a good job in economic work towards the end of Q3 and Q4.
- China is to reportedly cut rates on USD 5tln mortgages as soon as September to boost consumption in which it is to cut rates by up to 50bps, according to Bloomberg sources. Furthermore, it was reported that some banks are making final preparations to get ready for the upcoming adjustments on mortgage rates and proposed cuts will likely come in two steps totalling about 80bps.
- China’s Commerce Minister will visit Europe next week to discuss EV tariffs with the official to meet with the EU Commission Vice President on September 19th for talks, according to the Chinese Commerce Ministry.
EU/UK
NOTABLE HEADLINES
- ECB cut Deposit Rates by 25bps to 3.5% and the Refinancing Rate by 25bps to 3.65% and the Marginal Lending Facility by 60bps to 3.90%, as expected, while it said it is not pre-committing to a particular rate path and will continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction. ECB said its interest rate decisions will be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission, while it will keep policy rates sufficiently restrictive for as long as necessary to achieve this aim.
- ECB forecasts HICP inflation for 2024 at 2.5% (prev. 2.5%), 2025 at 2.2% (prev. 2.2%) and 2026 at 1.9% (prev. 1.9%), while it sees HICP Core inflation (Ex-Energy & Food) for 2024 at 2.9% (prev. 2.8%), 2025 at 2.3% (prev. 2.2%) and 2026 at 2.0% (prev. 2.0%). Furthermore, it sees GDP for 2024 at 0.8% (prev. 0.9%), 2025 at 1.3% (prev. 1.4%) and 2026 at 1.5% (prev. 1.6%).
- ECB President Lagarde said in the post-meeting statement that the recovery is facing headwinds, according to surveys, but is expected to strengthen and fading monetary policy restriction should support the economy.
- ECB President Lagarde said during the Q&A that domestic inflation is not satisfactory and reiterated the ECB will be data-dependent, deciding policy on a meeting-by-meeting basis. Lagarde also said a declining path of rates is obvious but not pre-determined and September will likely see a low inflation reading due to base effects although noted that inflation will rise again in Q4. Furthermore, she reiterated that the ECB is not committing anything with regard to the October meeting.
- ECB officials have not ruled out a rate cut at the October meeting and GC members aren’t yet in a position to rule out an interest-rate cut at their next decision on October 17th even if such a move is unlikely, according to Bloomberg sources. Furthermore, given the downside risks to economic growth in the EZ, officials would rather keep open the option to lower borrowing costs at that meeting.
- An ECB October rate cut is said to be unlikely for now and a move before December would take exceptional negative growth surprises, according to Reuters sources. Furthermore, sources added that a move on October 17th could not be ruled out but it was not likely because policymakers would not have much new information by then and would rather wait for a new round of projections in December.
