North American News
US Equities Falter as Big Fed Rate Cut Fails to Sustain Momentum
Market Overview: The major US stock indices experienced volatile trading and ended the day with declines. Despite the Federal Reserve’s substantial rate cut, the anticipated boost to equity markets did not materialize, with the Dow, Nasdaq, and S&P 500 all closing lower.
Closing Numbers:
- Dow Jones Industrial Average: -67.89 points, closing at 41,538.29 (-0.2%)
- Nasdaq Composite: -35.75 points, closing at 17,592.29 (-0.2%)
- S&P 500: -11.30 points, closing at 5,623.28 (-0.2%)
- Russell 2000: +0.3%
Market Action:
- Equities: The major indices traded erratically following the Fed’s announcement and during Chair Jerome Powell’s press conference. Despite the Fed’s decision to cut rates by 50 basis points, the market struggled to maintain momentum.
- Treasury Yields: The 10-year note yield initially dropped to 3.65% but has since risen to 3.70%. The 2-year note yield similarly fell to 3.54% before climbing back to 3.62%.
- US Dollar Index: The index fell by 0.1% to 100.78, reflecting some weakness in the Greenback.
Summary: The significant Fed rate cut failed to deliver the hoped-for boost to equities, leading to a day of mixed results and choppy trading. The market’s reaction highlighted ongoing uncertainties and adjustments following the Fed’s policy changes.
FOMC September 2024 dot plot and central tendencies of economic forecasts
- Fed views on interest rates, GDP, Unemployment and PCE inflation
Below is the table economic forecasts for GDP, Unemployment, PCE inflation and Core PCE inflation.
Summary of the economic projections:
- GDP steady
- Unemployment rate in 2024 4.4% vs 4.0% prior
- Unemployment rate in 2025 4.4% vs 4.2% prior
- 2024 PCE inflation 2.3% vs 2.6% prior
- PCE inflation lower. To 2.1% by end of 2025 and 2.0% by EOY 2026
- 2024 core PCE 2.6% vs 2.8% prior
- Core PCE inflation lower. To 2.2% from 2.3% in 2025 and 2.0% by EOY 2026
- Median at 4.4% this year vs 5.1% prior
- Median at 3.4% vs 4.1% prior Fed funds rate for end-2025
- Median at 2.9% vs 3.1% at end-2026
- Median view of longer-term Fed funds at 2.9% vs 2.8% prior
- 2024 GDP growth median +2.0% vs +2.1% prior
- 2025 GDP 2.0% vs +2.0% prior
Federal Reserve September interest rate decision: 50 basis point cut
- The outcome of the September 18, 2024 FOMC meeting and rate decision
- Bowman dissents in 11-1 vote
- No change to QE, as expected
- Economists widely expected a 25 bps cut
- Fed funds futures priced the likelihood of 50 bps at 59%
- Fed funds were in range of 5.25% to 5.50% before the decision
- Now says: The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance.
- Repeats that economic activity had continued to expand at a solid pace
- Says job gains have slowed
- Prior statement said job gains had moderated
- Says inflation has made further progress toward the Committee’s 2 percent objective but remains somewhat elevated.
- Prior statement said inflation had eased over the past year but remains somewhat elevated
Atlanta Fed GDPNow growth estimate for Q3 falls to 2.9% from 3%
- The Atlanta Fed weighs in on its Q3 growth forecast
In their own words:
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2024 is 2.9 percent on September 18, down from 3.0 percent on September 17. After this morning’s housing starts report from the US Census Bureau, the nowcast of third-quarter real gross private domestic investment growth decreased from 3.2 percent to 2.8 percent.
US August housing starts 1.356m vs 1.310m expected
- US August housing starts data
- Prior was 1.238m (revised to 1.237m)
- Starts +9.6% vs -6.8% prior
- Building permits 1.475mM vs 1.396M expected
- Permits +4.9% vs -4.0% prior
US MBA mortgage applications w.e. 13 September +14.2% vs +1.4% prior
- Latest data from the Mortgage Bankers Association for the week ending 13 September 2024
- Prior +1.4%
- Market index 266.8 vs 233.7 prior
- Purchase index 146.1 vs 138.6 prior
- Refinance index 941.4 vs 757.8 prior
- 30-year mortgage rate 6.15% vs 6.29% prior
Former Fed Pres. Mester: It is a really close call. Good case for a series of 25 bp cuts
- Former Cleveland president Mester speaking on CNBC
- 25 or 50 bp in cuts is really a close call.
- Good case for series of 25 basis points cuts
- The Fed is starting a series of cuts to bring restrictiveness back down
- It is time to start a new phase of bringing rates lower
- The Fed will stay on the job until inflation moves to 2%, but wants to not see unemployment moving higher
- Always focused on what is the best we can do for the US economy. Politics never entered the room.
Former St Louis Fed President Bullard: The FOMC should cut by 25 bps
- Bullard on CNBC
“It seems to me the Fed will coalesce around three 25 basis point cuts this year and keep a deeper cut in their pocket,” he said.
JP Morgan CEO Dimon says FOMC rate cut today is “not going to be earth-shattering.”
- His focus is on geopolitical risk
JPMorgan CEO Jamie Dimon was speaking at a conference on Tuesday. I didn’t hear a specific 25 or 50 from him, but he did say that the cut is “not going to be earth-shattering.”
More on the cut:
- “it’s a minor thing”
- “People overly focus on, ‘are we going to have a soft landing, a hard landing? Honestly, most of us have been through all that stuff, it doesn’t matter as much.”
Dimon says his big concerns right now are geopolitical issues
- Ukraine
- the Middle East
- US relationship with China
Bank of Canada minutes: Some members were more concerned about downside inflation risks
- Minutes of the September 4, 2024 Bank of Canada meeting
- Some Governing Council members were more concerned about downside risks to inflation
- Concern about downside risks was linked to potential further weakening of economy and labor market
- Other members took the view that risks to inflation outlook were balanced
- Members discussed whether weakness in Canadian consumption and housing could partly be due to caution on the part of households
- Members felt consumers could be waiting for lower rates to make large purchases or enter the housing market
- Discussed scenario where economy could weaken and it might be appropriate to speed the pace of cuts
- Labor market softening, wage growth still elevated
- Housing market subdued
- No pre-determined path for rates, decisions to be made meeting-by-meeting
- Council puzzled by successive upside surprises in US household spending
- Felt low US saving rate was a possible indicator of weakness going forward
- In China, continued weakness in domestic demand had increased the downside risk to the growth outlook
- The Bank of Canada cut rates by 25 bps at the meeting
- Macklem signaled a willingness to cut more-quickly after the decision
- BOC deputy Nicolas Vincent speaks tomorrow
Bank of Canada Rogers still sees work to do on inflation, but core should decline
- Bank of Canada’s Senior Deputy Governor Carolyn Rogers
- Sees ongoing work to do on inflation
- Core measures of CPI should decline
Commodities
Gold Hits Record Highs After Fed’s Rate Cut but Retreats After Powell’s Remarks
Market Overview: Gold prices surged to new all-time highs before retreating following the Federal Reserve’s (Fed) decision to cut rates by 50 basis points. Despite the initial rally, the yellow metal experienced a decline as the market digested the Fed’s projections and Jerome Powell’s comments.
Key Developments:
- Fed Rate Cut: The Federal Reserve lowered interest rates by 50 basis points, bringing the federal funds rate to a range of 4.75% to 5.00%. The Fed’s median projections indicate that rates will end 2024 around 4.4%, with inflation expected to hit 2.6% in 2024 and 2.2% in 2025.
- Economic Outlook: Fed officials expressed confidence in achieving their 2% inflation target, despite uncertainties in the economic outlook. They forecasted a 2% growth rate for 2024 and an increase in the unemployment rate to 4.4%.
- Powell’s Press Conference: Fed Chair Jerome Powell emphasized that inflation risks have decreased and affirmed the strength of the economy. He suggested that if inflation persists, the Fed could adjust policy more gradually but indicated no rush to normalize policy quickly.
- Market Reaction: Gold prices fluctuated between $2,565 and $2,600 during the North American session but ended the day down by over 0.20%. The rise in US Treasury yields to 3.67% and a dip in the US Dollar Index (DXY) to 100.49, a yearly low of 100.24, contributed to the volatility.
Daily Market Movers:
- Interest Rate Futures: December 2024 fed funds rate futures imply a potential further reduction of at least 108 basis points by the end of the year, suggesting two more 25 basis point cuts.
- Housing Data: US Building Permits for August increased by 4.9% month-over-month to 1.475 million, while Housing Starts rose by 9.6% to 1.356 million, indicating robust activity in the housing sector despite broader economic uncertainties.
Gold’s initial gains were erased as investors processed the Fed’s rate cut and economic projections, reflecting the complexities of balancing inflation control with economic growth and employment objectives.
Crude oil settles down eight cents at $69.88
- Crude oil futures moves lower after settlement
The price of crude oil is trading lower as the Fed Powell is conference continues. The settlement price came in at $69.88, and the current price is trading at $69.35.
EIA crude oil inventories fall -1.630M barrels vs -0.500M estimate
- The weekly EIA oil inventory data
- Crude oil inventories -1.630M vs -0.500M estimate
- Gasoline inventories +0.069M vs +0.240M estimate
- Distillates inventories +0.125M vs +0.551M estimate
- Cushing -1.979M vs -1.704M last week
- refining utilization -0.7% versus expectations of -1.0%. Previously -0.5%
EU News
European closes mostly mixed
- Closing changes for the main European bourses
- Stoxx 600 -0.5%
- German DAX flat
- Francis CAC -0.5%
- UK’s FTSE 100 -0.7%
- Spain’s Ibex -0.1%
- Italy’s FTSE MIB -0.4%
Eurozone August final CPI +2.2% vs +2.2% y/y prelim
- Latest data released by Eurostat – 18 September 2024
- Prior +2.6%
- Core CPI +2.8% vs +2.8% y/y prelim
- Prior +2.9%
UK August CPI +2.2% vs +2.2% y/y expected
- Latest data released by ONS – 18 September 2024
- Prior +2.2%
- Core CPI +3.6% vs +3.5% y/y expected
- Prior +3.3%
UK inflation data bolsters odds of BOE keeping bank rate unchanged tomorrow
- The OIS pricing now shows odds of a 25 bps rate cut falling to ~26%
That is down from ~37% previously coming into today. That means traders are seeing some ~74% odds of the BOE keeping rates unchanged tomorrow.
Asia-Pacific-World News
PBOC sets USD/ CNY reference rate for today at 7.0870 (vs. estimate at 7.0828)
- PBOC CNY reference rate setting for the trading session ahead.
In open market operations:
- PBOC injects 568bn via 7-day RR, sets rate at 1.7%
- 487.5 bn yuan reverse repo and 591 bn yuan MLF loans expire today
- net 510.3 bn liquidity drained from market
Australia leading index in August shows still very slow growth ahead
- Thoughts on a potential RBA rate cut , not soon, but maybe on the horizon
Australia Westpac Leading Index for August 2024 -0.05% m/m
- prior –0.03%
Westpac note, in summary:
- The six-month annualised growth rate in the Westpac-Melbourne Institute Leading Index, which indicates the likely pace of economic activity relative to trend three to nine months into the future, declined from +0.04% in July to -0.27% in August.
- Commodity price fall a significant drag on momentum.
- Other components stable rather than weak.
- Signal points to activity remaining subdued through first half of 2025.
Australian August Monthly CPI preview – Westpac expect 2.7% y/y for the monthly read
- This would be close to the mid point of the RBA 2 – 3% target band
This is via Westpac’s preview of the inflation data due from Australia on Wednesday 25 September at 11.30 am Sydney time
- 0130 GMT, 2130 US Eastern time
In brief:
- WPAC near-cast for the August Monthly CPI Indicator is –0.2%mth/2.7%yr.
- For the September quarter CPI our near-cast is 0.3%qtr/2.9%yr. …. Our near-cast for the Trimmed Mean is 0.7%qtr/3.5%yr.
- Driving prices down in August is the further extension of the household energy rebates (particularly for, but not limited to, NSW and Vic) plus falling auto fuel, holiday travel and garments.
- Pushing prices up in August are rents, dwellings, food, alcohol & tobacco, household contents & services and finance & insurance.
- Being the second month of the quarter, August provides an update on the services surveyed in the mid-month of each quarter.
- preliminary August near-cast for market services ex volatile is 0.3%mth/4.6%yr.
New Zealand data – Q3 consumer confidence 90.8 (prior 82.2)
- Westpac’s Consumer Confidence survey for NZ, Q3 2024 90.8 (Prev. 82.2)
New Zealand data – Current account deficit for Q2 comes in larger than expected
- Widening current account
New Zealand Current Account (QoQ) (Q2)
- Actual: -4.83B
- Expected: -3.95B
- Previous: -4.36B
New Zealand Current Account (YoY) (Q2)
- Actual: -27.76B
- Previous: -27.64B
New Zealand Current Account % of GDP (Q2)
- Actual: -6.70%
- Previous: -6.80%
Japan maintains economic assessment in latest monthly report
- The Japan government sees the economy as recovering at a moderate pace, although it remains pausing in part
A couple of details from the report for September:
- Private consumption shows movements of picking up recently
- Business investment shows movements of picking up
- Industrial production shows movements of picking up
- The employment situation shows movements of improvement
- Exports are almost flat
- Consumer prices have been rising moderately
Japan August data shows a big miss for both exports and imports – recap
- Casting doubt over economic recovery
The Bank of Japan meet this week, announcement due on Friday September 20.
The Bank is not expected to hike rates again:
In summary:
- exports rose for a ninth straight month, but at a much slower-than-expected pace in August
- shipment volumes fell 2.7% y/y, the seventh consecutive month of declines
- indicating slowing global demand is impacting a previously bright light for Japan’s economy
- imports showed a huge miss also, weaker import performance is often a sign of an economy slowing down
Japan August exports +5.6% y/y (expected +10.0%) & imports +2.3% y/y (expected +16.6%)
- Japan trade data for August 2024
Japan trade data for August 2024 … dreadful misses for both exports and imports.
- expected -0.96tln
- prior -0.76tln yen
Exports to:
- China +5.2% y/y
- the EU -8.1% y/y
- the US -0.7% y/y
Japan Adjusted Trade Balance
- Actual: -0.60T
- Expected: -0.96T
- Previous: -0.76T
Japan Machinery orders for July 2024: -0.1% m/m (expected +0.8%)
- A leading indicator of capital spending in the coming six to nine months
Japan Core Machinery Orders (YoY) (Jul)
- Actual: 8.7%
- Previous: -1.7%
Japan Core Machinery Orders (MoM) (Jul)
- Actual: -0.1%
- Expected: 0.4%
- Previous: 2.1%
Japan Exports (YoY) (Aug)
- Actual: 5.6%
- Expected: 10.0%
- Previous: 10.2%
Japan Imports (YoY) (Aug)
- Actual: 2.3%
- Expected: 13.4%
- Previous: 16.6%
Japan Core Machinery Orders (MoM) (Jul)
- Actual: -0.1%
- Expected: 0.4%
- Previous: 2.1%
Cryptocurrency News
XRP Slides 4% Amid Ripple’s RLUSD Stablecoin Announcement
Market Overview: Ripple’s XRP experienced a correction on Wednesday, falling nearly 4% to $0.5644. This decline comes despite the company’s recent announcement detailing its new stablecoin, Ripple USD (RLUSD), aimed at enhancing regulatory compliance and supporting the digital asset economy.
Key Developments:
- Stablecoin Announcement: Ripple unveiled its stablecoin project, RLUSD, in a blog post on Tuesday. The stablecoin is designed to meet regulatory requirements and integrate with the broader digital asset economy. Ripple’s post highlighted the potential benefits of stablecoins, including their speed, security, and efficiency compared to traditional cash systems.
- Legislative Support: Ripple discussed the Clarity of Payments Stablecoin Act, which, if passed, could provide a regulatory framework supporting innovation in the stablecoin sector and blockchain technology.
- XRP Performance: Despite the positive news regarding RLUSD, XRP saw a decrease of approximately 4% on Wednesday. The coin was trading at $0.5644, reflecting a broader market correction.
- Stablecoin Advantages: Ripple emphasized that stablecoins like RLUSD address challenges such as the double spend problem seen in some cryptocurrencies, offering a reliable and cost-effective alternative for cross-border payments.
- Institutional Focus: Ripple’s CTO, David Schwartz, noted that RLUSD will be exclusively available to institutional clients, drawing comparisons to other major stablecoins like Circle’s USD Coin (USDC) and USD Tether (USDT).
Daily Market Movers: XRP’s decline occurred in tandem with Ripple’s stablecoin announcement, indicating that while the development of RLUSD is significant for Ripple’s future plans, it has not yet translated into positive price movement for XRP. The market continues to react to both regulatory news and broader digital asset trends.
Ethereum Eyes $2,817 Rally Post-Fed Rate Cut
Market Update: Ethereum (ETH) is showing signs of recovery after the Federal Reserve’s recent decision to cut interest rates by 50 basis points. The cryptocurrency is trading above $2,330 as the market adjusts to this significant policy shift. Despite this positive movement, Ethereum ETFs have experienced notable outflows.
Key Developments:
- Rate Cut Impact: The Fed’s decision to reduce rates to 4.75% – 5% marks the first rate cut since March 2020. This has sparked renewed buying interest in Ethereum, as investors anticipate increased market participation. Historically, Q4 has been a strong period for cryptocurrencies, potentially boosting Ethereum’s performance in the coming months.
- Resistance Level: Ethereum is attempting to break above the key resistance level of $2,395. A sustained move above this level could set the stage for a rally towards $2,817, reflecting a significant potential upside if momentum continues.
- ETF Outflows: Despite the positive price action, Ethereum ETFs recorded $15.1 million in outflows on September 17. Grayscale’s ETHE saw a significant outflow of $17.9 million, while its Ethereum Mini Trust experienced a modest inflow of $2.8 million.
- Holder Activity: Ethereum holders are showing mixed actions:
- Large Holders: Those holding more than 100K ETH are largely inactive, possibly due to staking or DeFi investments.
- Mid-Tier Holders: Investors with holdings between 10K and 100K ETH are slowly accumulating.
- Small Holders: Individuals holding between 100 and 1K ETH have been selling off steadily, with increased selling pressure in August and September compared to earlier in the year.
Outlook: Ethereum’s price action is closely tied to macroeconomic factors, with the recent Fed rate cut providing a potential catalyst for a rebound. The upcoming months could be pivotal for ETH, particularly if it manages to overcome current resistance levels and if market sentiment continues to improve.
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