Flirting with records as Fed rates finally fade
A look at the day ahead in U.S. and global markets from Mike Dolan
There's little left to say about the dominant event of the day - other than how to game markets' reaction to the size of the Federal Reserve's interest rate cut later and what Fed policymakers project over the horizon.
Few, if any, doubt the first Fed easing of the cycle is now at hand. Wall Street's S&P500 .SPX hit a new intra-day record on Tuesday ahead of the decision - lapping up the prospect of lower borrowing costs even as the economy picks up some steam. Stock futures held firm overnight into the big decision.
What's not to like?
A last-minute economic health-check as Fed officials gathered showed retail sales unexpectedly rising again in August and factory output beating forecasts, confounding more downbeat surveys of manufacturers last month.
So much so, the Atlanta Fed's 'GDPNow' model raised its third-quarter growth estimate by half a point to 3% afterwards - on par with the pace the economy grew in the second quarter.
And despite the effervescence in markets and buoyancy of the economy, futures are still leaning toward a 50 basis point Fed cut on Wednesday rather than a more regular 25bp move. With 40bp still priced, that puts the chances of a bigger move at 60%.
Former Fed economist Claudia Sahm was on Tuesday the latest Fed alumnus to call for the heftier 50bp cut this week - arguing now was the time to act to prevent unnecessary job losses and ensure the central bank's twin goals were met.
"This is a Fed that has been very much behind the maximum-employment side of the dual mandate," Sahm said.
So, on the face of it, the economy in humming with a big rate cut coming and inflation is back in its box. Those poring over market almanacs see only good things from that.
It may be different this time, of course, but the average one-year stock market return after the first Fed rate cut is almost 5% even when a recession occurs. And it's more than 16% when the cuts come without a recession materialising at all - the most likely scenario now facing investors.
On the other hand, would the stock and bond markets now sulk if they don't get the 50bp cut favoured in the futures market?
For that, we may need to see how the cut matches up with Fed policymakers' 'dot plot' of future rate projections. Markets may quickly brush off a move if it simply pushes the total amount of easing out to coming meetings and expresses confidence about the economy.
Some think signs of dissent in the 'dot plot' may be important - not least if it suggests the Fed eased less than some of its policymakers thought it should.
And of course there will be attention on the so-called long term dot, which was put most recently at 2.8%. As this is broadly seen as Fed officials' estimate of the sustainable 'neutral' rate that neither spurs nor slows the economy, it's important in calculating Fed thinking on the extent of the cycle.
Before we get there, the Treasury market has sobered up a bit - with the two-year yield US2YT=RR edging back above 3.60% - more than 10bps above two-year lows hit on Monday. That's been just about enough to hold the dollar index .DXY off the year's low for now and above 141 Japanese yen JPY=.
The yen was reined in further by disappointing Japanese trade data that saw both exports and imports miss forecasts.
Stocks around the world generally mixed to positive, in line with Wall Street futures.
Underperforming in Europe, UK stocks .FTSE lost some ground and the pound GBP= pushed above $1.32 as the Bank of England is not expected to follow the Fed on Thursday - likely leaving its second cut of the year until after the new Labour government's first budget next month.
Reinforcing that thinking, British inflation held steady in August but sped up in the services sector which is closely watched by the BoE. Even though headline inflation remained steady near target at 2.2%, services inflation climbed above forecast to 5.6%.
But as much attention on Thursday may be on the BoE's latest annual estimate for the rundown of its balance sheet of bonds - widely expected to be a targeted 100 billion pound reduction over the next 12 months, as it was last year. A potential boom for the bond market, however, is that repeating that target would mean a 75% reduction in active gilt sales due to a large schedule of maturing debt that would runoff automatically.
Canada on Tuesday had much better news on the inflation front, with its CPI rate hitting the central bank's 2% target in August - below forecast and fuelling hopes for a 50bp rate cut from the Bank of Canada next month.
Key developments that should provide more direction to U.S. markets later on Wednesday:
* Federal Reserve's Federal Open Market Committee announces policy decision, with quarterly economic projections and press conference by Fed chair Jerome Powell
* US August housing starts/permits, July TIC data on overseas Treasury holdings
* Brazil central bank policy decision
* International Monetary Fund First Deputy Managing Director Gita Gopinath speaks in Ireland
* US corp earnings: General Mills
Fed interest rate changes in election years https://reut.rs/4dd9Bw7
Fed rate cut cycles starting in election years https://reut.rs/3WWUIHZ
US 'GDPNow' model hits 3% growth https://tmsnrt.rs/47ygWVy
US retail sales unexpectedly advance in August https://reut.rs/3TB00rR
British inflation unchanged in August, but services rises https://reut.rs/47t9vPJ
By Mike Dolan, editing by Andrew Cawthorne
mike.dolan@thomsonreuters.com
면책조항: XM Group 회사는 체결 전용 서비스와 온라인 거래 플랫폼에 대한 접근을 제공하여, 개인이 웹사이트에서 또는 웹사이트를 통해 이용 가능한 콘텐츠를 보거나 사용할 수 있도록 허용합니다. 이에 대해 변경하거나 확장할 의도는 없습니다. 이러한 접근 및 사용에는 다음 사항이 항상 적용됩니다: (i) 이용 약관, (ii) 위험 경고, (iii) 완전 면책조항. 따라서, 이러한 콘텐츠는 일반적인 정보에 불과합니다. 특히, 온라인 거래 플랫폼의 콘텐츠는 금융 시장에서의 거래에 대한 권유나 제안이 아닙니다. 금융 시장에서의 거래는 자본에 상당한 위험을 수반합니다.
온라인 거래 플랫폼에 공개된 모든 자료는 교육/정보 목적으로만 제공되며, 금융, 투자세 또는 거래 조언 및 권고, 거래 가격 기록, 금융 상품 또는 원치 않는 금융 프로모션의 거래 제안 또는 권유를 포함하지 않으며, 포함해서도 안됩니다.
이 웹사이트에 포함된 모든 의견, 뉴스, 리서치, 분석, 가격, 기타 정보 또는 제3자 사이트에 대한 링크와 같이 XM이 준비하는 콘텐츠 뿐만 아니라, 제3자 콘텐츠는 일반 시장 논평으로서 "현재" 기준으로 제공되며, 투자 조언으로 여겨지지 않습니다. 모든 콘텐츠가 투자 리서치로 해석되는 경우, 투자 리서치의 독립성을 촉진하기 위해 고안된 법적 요건에 따라 콘텐츠가 의도되지 않았으며, 준비되지 않았다는 점을 인지하고 동의해야 합니다. 따라서, 관련 법률 및 규정에 따른 마케팅 커뮤니케이션이라고 간주됩니다. 여기에서 접근할 수 있는 앞서 언급한 정보에 대한 비독립 투자 리서치 및 위험 경고 알림을 읽고, 이해하시기 바랍니다.
