- US stocks rallied and the S&P 500 surged to a record high as the dust settled after the Fed over-delivered in its first rate cut in four years with the advances led by notable outperformance in tech although defensives lagged, while participants also digested better-than-expected data releases including the Philly Fed Index and Initial Jobless Claims which pressured the treasury complex.
- USD weakened following the Fed's recent 50bps rate cut which spurred a day of risk-on action, while the various data releases from the US were better-than-expected but failed to inspire a sustained recovery in the greenback with the DXY languishing beneath the 101.00 level.
- Looking ahead, highlights include Japanese National CPI, PBoC Loan Prime Rates, BoJ Rate Decision & Press Conference, Supply from Australia.
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LOOKING AHEAD
- Highlights include Japanese National CPI, PBoC Loan Prime Rates, BoJ Rate Decision & Press Conference, Supply from Australia.
- Click for the Newsquawk Week Ahead.
US TRADE
- US stocks rallied and the S&P 500 surged to a record high as the dust settled after the Fed over-delivered in its first rate cut in four years with the advances led by notable outperformance in tech although defensives lagged, while participants also digested better-than-expected data releases including the Philly Fed Index and Initial Jobless Claims which pressured the treasury complex.
- SPX +1.70% at 5,714, NDX +2.56% at 19,840, DJIA +1.26% at 42,025, RUT +2.10% at 2,253.
- Click here for a detailed summary.
NOTABLE HEADLINES
- US Senate Majority Leader Schumer said the Senate is to file cloture on the stopgap bill to avert a partial government shutdown.
- US President Biden's top economic adviser Brainard said a Fed rate cut sends a clear signal that inflation has come down.
- WSJ's Timiraos wrote that the Fed's 50bps cut doesn't neatly answer questions about the pace or destination because those can't be answered without more data, while he added it may make the communications a little bumpier if the data continues to roll in mixed with decent growth but cooling labour activity. Furthermore, he added that Wednesday's communications clarified the objective of not letting the soft landing slip away.
DATA RECAP
- US Leading Index MM (Aug) -0.2% vs. Exp. -0.3% (Prev. -0.6%)
- US Existing Home Sales (Aug) 3.86M vs. Exp. 3.90M (Prev. 3.95M, Rev. 3.96M)
- US Initial Jobless Claims 219k vs. Exp. 230k (Prev. 230k, Rev. 231k)
- US Continued Jobless Claims 1.83M vs. Exp. 1.85M (Prev. 1.85M, Rev. 1.84M)
- US Philly Fed Business Index (Sep) 1.7 vs. Exp. -1.0 (Prev. -7.0)
- US Philly Fed Prices Paid (Sep) 34.0 (Prev. 24.0)
- US Philly Fed New Orders (Sep) -1.5 (Prev. 14.6)
- US Philly Fed Employment (Sep) 10.7 (Prev. -5.7)
FX
- USD weakened following the Fed's recent 50bps rate cut which spurred a day of risk-on action, while the various data releases from the US were better-than-expected but failed to inspire a sustained recovery in the greenback with the DXY languishing beneath the 101.00 level.
- EUR benefitted from the softer greenback and shrugged off the dovish commentary by ECB officials.
- GBP was underpinned by the BoE's hawkish hold but then pared some of the gains owing to the strong US data.
- JPY softened on the day amid the heightened risk appetite although USD/JPY is off intraday highs after the 144.00 status proved to be elusive again and with participants now eyeing the Japanese inflation data, as well as the conclusion of the BoJ's 2-day policy meeting.
- CBRT maintained its Weekly Repo Rate at 50%, as expected, while it stated that the tight monetary stance will be maintained until a significant and sustained decline in the underlying trend of monthly inflation is observed but removed explicit reference to further tightening.
- Norges Bank kept its Policy Rate at 4.5% vs. Exp. 4.5% (Prev. 4.5%), while the policy rate forecast implies that the policy rate will remain at 4.5% to the end of 2024 before being gradually reduced from Q1 2025.
- SARB cut its Repo Rate by 25bps to 8.00% vs. Exp. 8.00% (Prev. 8.25%) via a unanimous decision and stated that forecasts suggest that inflation will be contained below 4.5% through to the end of the forecast horizon in 2026. SARB said risks to the growth outlook and to inflation are seen as "balanced" but noted that inflation expectations are slowly moving in the right direction.
FIXED INCOME
- T-notes were pressured and the curve flattened after strong US data.
COMMODITIES
- Oil prices gained amid the broader post-Fed risk-on sentiment and heightened geopolitical risk.
- Ukraine agreed to transit Azerbaijani gas after the Gazprom deal ends, according to reports citing Ukrainian press.
GEOPOLITICAL
MIDDLE EAST
- IDF said forces launched attacks on Hezbollah targets in Lebanon, while it was later reported that Israel conducted dozens of strikes in south Lebanon in a major intensification of bombing, according to Reuters citing security sources.
- Hezbollah renewed its rocket attacks on Israeli northern communities with over 40 rockets fired towards northern Israel including 20 at western Galilee.
- Israeli Defence Minister Gallant said Hezbollah feels hounded and will pay an increasing price, while he stated that military actions will continue.
- Israel's military chief said they have approved plans for the northern arena and to continue the war.
- Israel will determine tonight the course of its action on the northern front, according to Sky News Arabia citing Israel Broadcasting Corporation.
- Lebanese ministers warned of a dangerous next 48 hours after pager and device attacks, according to CNBC.
- Hezbollah chief said Israel will not be able to return the residents of the north unless the war on Gaza stops, while he warned that attacks on Tuesday and Wednesday will meet a 'just punishment'. It was also reported that Iran's Revolutionary Guards commander Salami told Hezbollah’s chief that Israel will face a crushing response from the Axis of Resistance.
- US Secretary of Defense Austin has postponed his visit to Israel planned for early next week due to the escalation on the Israeli-Lebanese border, according to Axios citing two Israeli officials briefed on the matter.
- White House said they are afraid and concerned about a potential escalation in the Middle East.
OTHER
- Ukrainian President Zelenskiy said Ukrainian forces have reduced Russian potential for attacks in the eastern Donetsk region and the Ukrainian operation in Russia's Kursk region has obliged to redirect 40k troops to that area.
- Russia's Chairman of the State Duma Volodin said the EU parliament's call for strikes on Russia with Western arms leads to global nuclear war and that Russia will respond with more powerful weapons to possible strikes on its territory with Western long-range weapons, according to RIA.
- Germany is poised to approve EUR 397mln in additional military aid for Ukraine, according to Reuters citing a letter.
- US imposed fresh sanctions related to Russia and North Korea, according to the Treasury website.
ASIA-PAC
NOTABLE HEADLINES
- China's state planner said they are capable and confident in achieving FY economic and social development goals, while it is to roll out a batch of incremental measures with "good effect" in a timely manner. It will also strengthen the force of macro adjustments and control, as well as step up counter-cyclical adjustments.
- No deal was reached in EU-China talks on EV tariffs, according to a SCMP Journalist. Furthermore, EU's Dombrovskis said both sides agreed to intensify efforts to find an effective, enforceable and WTO-compatible solution, while he said they held frank and constructive talks over imports of battery EVs from China.
- Republican Senator Rubio is introducing a bill to prevent Chinese companies benefiting from favourable US trade rules by operating in other countries.
- Chinese Ambassador said they welcome more Indian commodities to enter the Chinese market and welcome more Indian enterprises to invest in China.
EU/UK
NOTABLE HEADLINES
- BoE kept rates unchanged at 5.00%, in an 8-1 vote (exp. 7-2) as Dhingra voted for a 25bps rate cut, while the MPC also voted 9-0 to reduce the stock of Gilts by GBP 100bln between October 2024 and September 2025. MPC reiterated that monetary policy will need to continue to remain restrictive for sufficiently long and Governor Bailey said the MPC must be careful not to cut rates too fast, or by too much. Furthermore, most members think a gradual pace to rate cuts is warranted and they will continue to reduce Gilt holdings as evenly as possible across maturity sectors.
- BoE Governor Bailey said he is optimistic UK interest rates will fall further, though further evidence is required and need to see residual inflation pressures disappear.
- Germany's Bundesbank said the economy could shrink or stagnate in Q3 but added that a recession is not expected at present.
- ECB's Knot said there is room for further cuts if the inflation outlook holds and he is more or less fine with the market's cut expectations.
- ECB's Nagel said he is optimistic the new EU commission will move forward on capital markets union.
- ECB's Panetta said interest rate reductions by the ECB could accelerate in the next months, according to Radiocor.
- ECB's Schnabel said sticky services inflation is keeping headline inflation at an elevated level and real wage catch-up remains incomplete in large parts of the euro area, while she noted signs that transmission of monetary policy tightening is weakening.
