- US stocks saw two-way price action and the major indices finished marginally lower with an initial dovish knee-jerk reaction spurred following the Fed's decision to deliver a 50bps rate cut and with the dot plot suggesting a further 50bps reduction this year. However, the initial boost in stocks was then faded during the post-meeting press conference and Q&A as Fed Chair Powell kept their options open in which he noted that they could go quicker, or slower, or pause on rate cuts if it is appropriate, with decisions to be made in a meeting-by-meeting approach and he also suggested to not take the move as the new pace.
- USD whipsawed in the aftermath of the Fed in which the DXY was initially pressured and set a fresh YTD low after the Fed cut rates by 50bps although the greenback then recovered its losses owing to rhetoric from Fed Chair Powell who said they will go meeting-by-meeting on decisions and suggested that no one should think this is the new pace.
- Looking ahead, highlights include New Zealand GDP, Australian Employment Change & Unemployment Rate, South Korean Revised Trade Data, Supply from Japan.
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LOOKING AHEAD
- Highlights include New Zealand GDP, Australian Employment Change & Unemployment Rate, South Korean Revised Trade Data, Supply from Japan.
- Click for the Newsquawk Week Ahead.
US TRADE
- US stocks saw two-way price action and the major indices finished marginally lower with an initial dovish knee-jerk reaction spurred following the Fed's decision to deliver a 50bps rate cut and with the dot plot suggesting a further 50bps reduction this year. However, the initial boost in stocks was then faded during the post-meeting press conference and Q&A as Fed Chair Powell kept their options open in which he noted that they could go quicker, or slower, or pause on rate cuts if it is appropriate, with decisions to be made in a meeting-by-meeting approach and he also suggested to not take the move as the new pace.
- SPX -0.3% at 5,618, NDX -0.5% at 19,344, DJIA -0.3% at 41,503, RUT Flat at 2,206.
- Click here for a detailed summary.
FOMC
- FOMC cut rates by 50bps to 4.75-5.00% (exp. 5.00-5.25%) through an 11-1 vote (Bowman called for a cut of 25bps) and it sees 50bps more cuts this year. Fed stated that inflation has made further progress toward the 2% objective and remains 'somewhat elevated', while the FOMC has gained greater confidence in inflation moving sustainably toward 2% and judged that risks to employment and inflation goals are roughly in balance. Furthermore, it will carefully assess incoming data, the evolving outlook and the balance of risks in considering additional rate adjustments, as well as noted that the economic outlook is uncertain and the FOMC is attentive to risks on both sides of the mandate.
- Fed sees rates ending 2024 at 4.4% (prev. 5.1%) and 2025 at 3.4% (prev. 4.1%), while it sees rates ending 2026 at 2.9% (prev. 3.1%) and 2027 at 2.9% (exp. 2.9%), with the longer run view at 2.9% (exp. 2.9%, prev. 2.8%).
- Fed Chair Powell said in the post-meeting statement that the Fed is not on a preset course and will go meeting-by-meeting on decisions, as well as noted that economic projections are not a plan or decision, and that policy will be adjusted as necessary. Powell also said if the economy remains solid, the Fed can dial back the pace of cuts and equally if the labour market deteriorates, the Fed can respond the economy is strong overall, while he added the is Fed committed to maintaining the economy's strength and expects GDP growth to remain solid. Furthermore, he said the rate decision reflects growing confidence that strength in the labour market can be maintained and noted that inflation has eased notably but remains above the Fed's goal.
- Fed Chair Powell said during the Q&A that there has been a lot of data including during the blackout in response to why the Fed has opted for a 50bps move and that benchmark revisions showed payrolls may be revised down, while he stated the Committee concluded that a 50bps rate cut was the right thing for the economy and reiterated that future decisions will be made on a meeting-by-meeting basis, as well as noted there is nothing in the projections that suggests the Fed is in a rush and they can go quicker, or slower, or pause on rate cuts if it is appropriate. Powell also commented that no one should look at today and think this is the new pace and he does not think the Fed is behind the curve with the rate move timely and a sign of the Fed's commitment to not get behind.
NOTABLE HEADLINES
- Teamsters union said a poll of members showed that 58% supported Trump compared with 31% for Harris, while it later announced that it is not making a US presidential election endorsement.
DATA RECAP
- US Housing Starts Number (Aug) 1.356M vs. Exp. 1.31M (Prev. 1.238M, Rev. 1.237M)
- US Building Permits: Number (Aug) 1.475M vs. Exp. 1.41M (Prev. 1.406M)
FX
- USD whipsawed in the aftermath of the Fed in which the DXY was initially pressured and set a fresh YTD low after the Fed cut rates by 50bps although the greenback then recovered its losses owing to rhetoric from Fed Chair Powell who said they will go meeting-by-meeting on decisions and suggested that no one should think this is the new pace.
- EUR also fluctuated and returned to flat territory just slightly above the 1.1100 level after price action was solely driven by the Fed.
- GBP outperformed with early momentum spurred by the hawkish elements from the overall mixed UK inflation report, while attention turns to the BoE decision.
- JPY was supported following the Fed rate decision which dragged USD/JPY to sub-141.00 territory before eventually fading the entire move.
- BoC minutes stated that ahead of the meeting, some governing council members were more concerned about downside risks to inflation and the concern about downside risks was linked to a potential further weakening of the economy and labour market. However, other members took the view that risks to the inflation outlook were balanced and the governing council agreed it would like to see the economy grow at a rate above potential output.
FIXED INCOME
- T-notes were lower despite the initial bid following the Fed's 50bps rate cut which was then reversed after Fed Chair Powell stressed a meeting-by-meeting approach and to not think this is the new pace.
COMMODITIES
- Oil prices were ultimately flat after a choppy session amid geopolitical tensions and a greater-than-expected EIA crude draw which was followed by the Fed's 50bps cut.
- US EIA Weekly Crude Stocks w/e -1.63M vs. Exp. -0.1M (Prev. 0.833M)
- Russia could hold off oil export cuts in October due to domestic refinery maintenance, according to traders cited by Reuters.
- Libya’s oil and gas minister said the plan is to double natgas production to 4bln cubic feet over the next 4-5 years.
GEOPOLITICAL
MIDDLE EAST
- More than a dozen were killed and over 450 people injured after hand-held radios used by Hezbollah detonated late on Wednesday afternoon, while the Lebanese Health Ministry later announced the death toll from Lebanon's blasts on Wednesday rose to 20.
- Israeli Army Chief said they have many capabilities they have not yet activated, while he added that Israel plans ahead by stages and the price paid by Hezbollah should be high at every stage.
- Israeli Security Cabinet authorised PM Netanyahu and Galant to take action against Hezbollah, according to Al Jazeera citing Israel’s Channel 12.
- Israeli media reported that the commander of the Northern Command presented the Chief of Staff and the political level with a series of plans to launch a ground operation in Lebanon, according to Cairo News.
- Lebanon's Hezbollah said it attacked Israeli military posts in the first cross-border attack since the pager explosions. It was also reported that a top Hezbollah official said the group is facing a "new phase" and "punishment is certainly coming".
- Senior Hamas official said the Israeli government is responsible for the repercussions of this continuous attack on Lebanon.
- Egypt's Foreign Minister said Hamas confirmed full commitment to the ceasefire agreement reached in late May and to the amendments made in July.
- Germany's government placed war weapons export permits to Israel on hold, according to Reuters citing sources.
- Iran will follow up on the attack against its envoy in Lebanon and reserves its rights under international law to take required measures deemed necessary to respond, according to a letter from Iran's UN envoy.
- US issued fresh Iran-related sanctions, according to the Treasury website.
OTHER
- Russian President Putin ordered the signing of a comprehensive strategic partnership agreement between Russia and Iran, according to Interfax.
- Russia’s Kremlin said remarks from NATO Secretary General Stoltenberg regarding missile strikes on Russia not being a red line for Moscow are deemed to be very dangerous and provocative.
ASIA-PAC
NOTABLE HEADLINES
- China's Foreign Ministry said it is taking countermeasures against some US firms regarding their weapons sales to Taiwan and measures include freezing property within China owned by the firms.
- China’s government pushed back on a US probe of whether China is helping Russia dodge a US ban on Russian uranium imports and said that Beijing has always opposed "illegal unilateral sanctions".
- China's Finance Ministry will suspend the policy of exempting some agricultural products originating in Taiwan from tariffs as of September 25th.
- China’s FX regulator said the global financial environment is expected to improve as developed economies start the rate cutting cycle and as China's FX market becomes more resilient, it will continue to play a positive role in stabilising market expectations and trading.
- Japan's government said the economy is in moderate recovery and it kept its economic assessment unchanged in September from August.
EU/UK
NOTABLE HEADLINES
- ECB's Nagel said inflation is currently not where they want it to be and intervals between potential rate cuts may vary, while he will not commit to any future rate decision and said the ECB must demonstrate it has staying power to defeat inflation.
DATA RECAP
- UK CPI YY (Aug) 2.2% vs. Exp. 2.2% (Prev. 2.2%)
- UK Core CPI YY (Aug) 3.6% vs. Exp. 3.5% (Prev. 3.3%)
- EU HICP Final YY (Aug) 2.2% vs. Exp. 2.2% (Prev. 2.2%)
- EU HICP-X F&E Final YY (Aug) 2.8% vs. Exp. 2.8% (Prev. 2.8%)
