Fed is unlikely to deliver emergency cut to quell market selloff, analysts say
Fixes typo in Christian Salomone quote to say Jackson Hole from Jackson Hall
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All S&P 500 sectors red; Tech weakest group
Dollar, crude decline; gold off >1.5%; bitcoin slides ~8%
U.S. 10-Year Treasury yield edges up to ~3.81%
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FED IS UNLIKELY TO DELIVER EMERGENCY CUT TO QUELL MARKET SELLOFF, ANALYSTS SAY
The U.S. Federal Reserve is unlikely to deliver an emergency, inter-meeting, interest-rate cut to quell a widespread selloff in equities triggered by weak labor market data last week, analysts say.
S&P 500, Nasdaq and the Dow slumped on Monday, with so-called Magnificent Seven technology heavyweight stocks shedding as much as $1 trillion in value, amid growing market sentiment that the Fed would quickly move to a monetary policy easing stance to stave off an impending recession.
Equities in Europe and Asia were also hit with a selloff. The STOXX 600 .STOXX index fell 2.2%. MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS closed 4.20% lower, while Japan's Nikkei .N225 fell 12.40%.
A closely watched part of the U.S. Treasury yield curve, the 2s/10s spread US2US10=RR, a key bond market indicator of an upcoming recession, turned positive for the first time in two years. It later inverted again on Monday.
Investors and analysts believe the Fed will likely administer its first interest rate cut in years during its September meeting in wake of the latest economic data. However, they argue that policy makers are unlikely to hold an emergency meeting to lower interest rates notwithstanding the current market volatility.
Christian Salomone, chief investment officer at Ballast Rock Private Wealth in Charleston, South Carolina, said:
"The Fed will probably say something at Jackson Hole to basically show their hand that there will be a cut in September and open the door potentially for another cut either in November and/or December. I would be very skeptical that they would do an emergency cut. Yes, the jobs data was poor, but then employment rate was still only 4.3%. The equity indices are still in positive territory for the year. So if the markets calm down a little bit, an emergency cut won't be needed."
Eric Beyrich, equity portfolio manager and co-chief investment officer at Sound Income Strategies, said:
"Portfolio managers and people who just got their marks in over the last few days down 10% would love that [an emergency cut]. But the Fed is not going to admit: it didn't admit when it was too late to raise rates and it's not going to admit that it's too late to cut rates. I don't think they do that. If they were that dynamic they would have spoken last week on Thursday and said they recognize what's going on. They're really dependent on rear-view-mirror-looking data, not contemporary data."
Brian Jacobsen, chief economist at Annex Wealth Management, said: "The fundamentals have deteriorated, but not to the point where I think a recession is imminent. The market is daring the Fed and other central bankers to provide liquidity. Will they? The argument for quick action was pretty clear during COVID, but it is less clear now. [Fed chair Jerome] Powell may ride in on a white horse with a 100 bps cut, but I wouldn't bank on it."
Joseph Lavorgna, managing director and chief economist at SMBC Nikko Securities, said in an investor note: "There is some growing concern that the Fed could cut interest rates inter-meeting. This is unlikely because 1) it would look like a panic move 2) Chair Powell can prep the markets for a big rate cut of at least 50 bps on August 23 at Jackson Hole 3) Anything that potentially further weakens the dollar could exacerbate the unwinding of the Yen carry trade. Consequently, the first easing is still most likely to happen at the September 18 FOMC meeting, which is also when the Fed provides updated economic and financial forecasts."
Schwab Center for Financial Research analysts said in a note: "We don't look for the Fed to hold an emergency meeting or cut rates before the September 18th meeting. It would take some significant event that would threaten the economy to force an inter-meeting cut. While the economy is looking softer and unemployment is rising, neither indicator is an emergency. We do believe that the Fed is behind the curve and a 50 bp cut in September could happen. But for now, we expect to see some members of the Fed try to calm markets with verbal communication - not actions."
(Chibuike Oguh and Chuck Mikolajczak)
*****
FOR MONDAY'S EARLIER LIVE MARKETS POSTS:
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HOW FAR CAN EUROPEAN BANKS FALL IN FRONT OF THE RECESSION GHOST? - CLICK HERE
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YEN'S RAPID SURGE HAS ALARM BELLS RINGING - CLICK HERE
"HAVE WE GONE TOO FAR, TOO FAST?" - CLICK HERE
EUROPEAN SHARES BATTERED IN GLOBAL SELL-OFF - CLICK HERE
STOCK MARKETS IN FREEFALL AS EUROPE GETS UNDERWAY - CLICK HERE
BATHED IN A SEA OF RED - CLICK HERE
"Magnificent 7" hammered in the last two weeks https://tmsnrt.rs/3SAdt2J
2024's big trades busting https://tmsnrt.rs/3SCIza5
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