InvestMacro

At Monday’s close, the Dow Jones (US30) was up 0.15%, while the S&P 500 (US500) added 0.28%. The NASDAQ Technology Index (US100) closed positive 0.14%. Optimism that the Fed will be able to achieve a soft landing for the economy is supporting stock prices. Minneapolis Fed President Kashkari and Chicago Fed President Goolsbee said yesterday that they support additional Fed rate cuts this year.

Intel (INTC) closed higher by more than 3% following a Bloomberg report that Apollo Global Management has offered to make a multi-billion dollar investment in Intel. Tesla (TSLA) rose more than 4% after Barclays said it expects the company’s third-quarter deliveries to exceed consensus estimates, which could further boost the stock.

Equity markets in Europe were mostly up on Monday. Germany’s DAX (DE40) rose by 0.68%, France’s CAC 40 (FR40) closed 0.10% higher, Spain’s IBEX 35 (ES35) Index gained 0.38%, and the UK’s FTSE 100 (UK100) closed up 0.36%. The S&P Eurozone Manufacturing PMI for September fell by 1.0 to 44.8, weaker than expectations of 45.7 and the sharpest rate of contraction in 9 months. The Eurozone Composite PMI for September fell by 2.1 to 48.9, weaker than expectations of 50.5 and the sharpest rate of contraction in 8 months. Investors are now betting on an additional ECB rate cut of around 44 basis points this year, with a 40% chance of a rate cut in October.

WTI crude oil prices climbed above $71 a barrel on Tuesday, rebounding from the previous session’s losses as the prospect of supply disruptions outweighed concerns about sluggish demand. Rising tensions in the Middle East have heightened fears of a wider conflict in the key oil-producing region after Israeli strikes on Lebanon on Monday. Investors are also watching the risk of a possible hurricane on the US Gulf Coast, which could impact oil production later this week. In addition, China announced a series of stimulus measures to support its economy, easing some concerns about sluggish demand from the world’s top oil consumer.

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) was up 1.53%, China’s FTSE China A50 (CHA50) added 0.57%, Hong Kong’s Hang Seng (HK50) was down 0.06%, and Australia’s ASX 200 (AU200) was negative 0.69%.

The ASX 200 Index (AU200) fell by 0.13%, extending the previous session’s losses after the Reserve Bank of Australia (RBA) expectedly left the cash rate unchanged at 4.35% amid continued high core inflation and lingering uncertainty over the overall outlook. The RBA also stated that the latest projections suggest that inflation will take some time to steadily return to the target range, indicating that it may need to keep higher rates for longer.

The offshore yuan strengthened to 7.03 per dollar, hitting a new sixteen-month high after a brief decline earlier in the session, helped by significant stimulus measures announced by the People’s Bank of China (PBoC). The Central Bank unveiled a number of initiatives, including a 50bp cut in the reserve requirement ratio, a 20bp cut in the seven-day reverse repo rate and a 30bp cut in the medium-term lending rate. In addition, the benchmark lending rates are expected to be cut by 20–25 bps after holding them at the September fixing level. The PBOC also plans to cut existing mortgage rates by about 50 basis points, potentially reducing households’ interest payments by about ¥150 billion.

On Friday, the Dow Jones (US30) Index gained 0.09% (+2.52% for the week), while the S&P 500 (US500) Index fell by 0.19% (+1.56% for the week). The NASDAQ Technology Index (US100) closed negative 0.36% (for the week +2.13%). Friday marked the quarterly expiration of futures and options. About $5.1 trillion worth of contracts expired on Friday, according to data from the Asym 500 analyst firm. The expiration also coincided with the rebalancing of benchmark indexes. The event has a reputation for sudden price movements as traders shift existing positions to new contracts.

FedEx (FDX) is falling more than 15% after the company reported Q1 adjusted EPS well below consensus and lowered its 2025 adjusted EPS estimate.

Canadian retail sales likely rose sharply in August after a solid July gain, signaling a strong rebound after two consecutive quarters of declining sales. The report sends a more optimistic signal about the strength of the Canadian economy than the latest gross domestic product data, which indicated growth stalled in June and July. The data may give Central Bank officials more confidence to curb inflation without plunging the economy into recession.

Bitcoin (BTC/USD) surpassed the $64,000 mark, hitting a one-month high and adding nearly 10% to its monthly gains. The moves came as the US Federal Reserve cut rates by 50 basis points this month and announced plans for permanent policy easing. Traders now see the $70,000 mark as potential resistance for Bitcoin, as they did in late July.

Equity markets in Europe were steadily declining on Friday. Germany’s DAX (DE40) fell by 1.49% (for the week +0.53%), France’s CAC 40 (FR40) closed down 1.51% (for the week +0.92%), Spain’s IBEX 35 (ES35) fell 0.21% (for the week +2.02%), and the UK’s FTSE 100 (UK100) closed down 1.19% (for the week -0.52%). European equities closed lower on Friday, reversing the previous session’s sharp gains as markets continued to assess the outlook for financial conditions this year following a series of Central Bank decisions this week. ECB Governing Council spokesman Rehn said on Friday that the ECB is clearly on track to ease monetary policy, with the pace and extent of easing dependent on fresh economic data and analysis.

WTI crude oil prices rose to $72 a barrel on Monday, extending their 3% gain from the previous week, boosted by the prospect of supply disruptions amid rising tensions in the Middle East. Hezbollah reportedly fired more than 100 rockets into northern Israel on Sunday. The attack followed an Israeli airstrike on Beirut on Friday that killed at least 45 people, including a top Hezbollah leader. However, concerns about Chinese demand remain, exacerbated by slowing production at refineries and weak industrial demand.
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Asian markets were mostly up last week. Japan’s Nikkei 225 (JP225) rose by 2.28%, China’s FTSE China A50 (CHA50) gained 0.62%, Hong Kong’s Hang Seng (HK50) jumped by 5.55%, and Australia’s ASX 200 (AU200) posted a positive 1.35%.

Malaysia’s annual inflation rate unexpectedly came in at 1.9% for August 2024, compared to market estimates of 2.0%. This was the lowest rate since April. Core consumer prices, excluding volatile fresh food and administrative expenses, were 1.9% y/y, unchanged for the fifth month and maintaining the strongest growth since December 2023. On a monthly basis, CPI rose by 0.1%, unchanged for the second consecutive month.

The Australian dollar edged above $0.68 on Monday, near its highest levels this year, as traders await the Reserve Bank of Australia’s (RBA) decision this week. The Central Bank is expected to leave rates unchanged on Tuesday amid strong labor market data and continued inflationary pressures. Markets don’t expect a rate cut until at least December, with some economists expecting the first move in February or even the second quarter of 2025.

The People’s Bank of China (PBOC) unexpectedly cut its 14-day reverse repo rate by 10 basis points to 1.85% on September 23, 2024 from 1.95% previously. The Central Bank also injected 74.5 billion yuan of liquidity into the banking system. Monday’s measures came ahead of the National Day holiday, a seven-day break beginning October 1.

The US indices rose steadily on Thursday. The S&P 500 (US500) and Dow Jones (US30) indices rose to new record highs, while the NASDAQ (US100) rose to a 2-month high. At the end of the day, the S&P 500 Index (US500) was up 1.7%, the Dow Jones (US30) added 1.26%, and the NASDAQ Technology Index (US100) jumped 2.51%.

The Fed’s 50 bps rate cut and estimates of another 50 bps rate cut this year reinforced speculation that the Fed will provide a “soft landing” and boosted risk sentiment in asset markets. Stocks maintained gains on Thursday despite higher bond yields after weekly US jobless claims fell more than expected to a four-month low, a hawkish factor for Fed policy. US weekly jobless claims fell by 12,000 to a 4-month low of 219,000, indicating a stronger labor market than expectations of 230,000. Markets rate the odds of a 25bp rate cut at the November 6–7 FOMC meeting at 100% and a 50bp rate cut at this meeting at 44%.

Equity markets in Europe were mostly up yesterday. Germany’s DAX (DE40) rose by 1.55%, France’s CAC 40 (FR40) closed 2.29% higher, Spain’s IBEX 35 (ES35) gained 0.80%, and the UK’s FTSE 100 (UK100) closed up 0.91%.

Producer prices in Germany fell 0.8% y/y in August 2024, the same pace as the previous month and better than market projections, which expected a 1.0% drop. This was the 14th consecutive month of producer price deflation and the lowest in the sequence. UK retail sales in August 2024 were up 1% on the previous month, following an upwardly revised rise of 0.7% in July and well above prognoses of 0.4%. On a year-over-year basis, retail sales rose by 2.5%, the highest since February 2022.

The Bank of Norway left its key rate unchanged at a sixteen-year high of 4.5% at its sixth consecutive meeting in September 2024 in line with market expectations and noted that it is likely to keep the interest rate unchanged until the end of the year. The bank noted that the higher interest rate helped cool the Norwegian economy as growth remained subdued and unemployment rose from a lower level.

WTI crude oil prices rose above $71.5 a barrel on Thursday, extending their recovery from a 15-month low of $65 reached on September 10, amid expectations of higher global energy demand and rising risk premiums caused by rising tensions in the Middle East. There were reports that Hezbollah radios exploded in southern Lebanon late Wednesday night after similar pager blasts a day earlier, heightening fears of military action in the region and Iran’s involvement in the conflict. Israel’s defense minister warned that the country has entered a new phase of war against its neighbors.

Asian markets were predominantly rising yesterday. Japan’s Nikkei 225 (JP225) rose by 2.13%, China’s FTSE China A50 (CHA50) gained 0.42%, Hong Kong’s Hang Seng (HK50) added 2.00%, and Australia’s ASX 200 (AU200) gained 0.61%.

The offshore yuan strengthened to 7.05 per dollar, remaining at its highest level since May 2023 and posting gains for the third consecutive session. The surge followed the Chinese Central Bank’s decision to keep key lending rates unchanged during September, which was in line with market expectations. The one-year prime rate (LPR), the benchmark for most corporate and home loans, remained unchanged at 3.35%, while the five-year rate, the benchmark for real estate mortgages, remained unchanged at 3.85%. Both rates remain at record lows after unexpectedly falling in July.

The Bank of Japan (BoJ) unanimously kept its key short-term interest rate at around 0.25% during its September meeting, leaving it at its highest level since 2008, in line with market consensus. Friday’s decision underscored that the Central Bank is in no rush to raise rates further after raising them twice this year, in March and July. The board also said more time was needed to monitor financial markets amid hawkish views from some members.

Stocks rallied first on Wednesday afternoon, with the S&P 500 (US500) and Dow Jones (US30) rising to new record highs and the NASDAQ (US100) rising to a 3-week-high. The FOMC’s decision on Wednesday to cut the target range for the federal funds rate by 50 bps and project another 50 bps rate cut before the end of the year pushed stock prices higher. However, stocks later gave up their mid-session gains and moved lower as hawkish comments from Fed Chair Powell pushed bond yields higher and sparked a sell-off in shares of chip companies. As a result, the Dow Jones Index (US30) was down 0.25%, while the S&P 500 Index (US500) fell by 0.29%. The NASDAQ Technology Index (US100) closed negative 0.31%.

The FOMC voted 11–1 to cut the target range for the federal funds rate by 50 bps to 4.75–5.00% and said the committee is “firmly committed to supporting maximum employment” and returning inflation to the 2% target. The market did not expect a 50bp rate cut immediately, but the reaction was rather subdued. Powell tried to reassure participants by explaining that the double cut was not a reaction to economic problems, but rather a catch-up with other central banks and a pre-emptive measure to avoid recession. The FOMC lowered its 2024 US GDP estimate to 2.0% from 2.1% in June and lowered its 2024 core PCE projection to 2.6% from 2.8% in June. The FOMC also raised its 2024 unemployment prognosis to 4.4% from 4.0% in June.

Key talking points from Fed Chairman Jerome Powell’s speech:

• The Fed rate was lowered to 5.00%, compared to market expectations of 5.25%; this is the first Fed rate cut in four years.
• Fed balance sheet reduction (QT) continues as planned.
• Declining inflation and a cooling labor market indicate the need for monetary policy easing.
• The US economy is strong, but since other central banks have already cut rates earlier this year, the Fed may act more aggressively.
• The Fed has kept rates high longer than other central banks, and that has had an effect: lower inflation is on the right trajectory.
• The current 50bp rate cut is not a reaction to the economic problems but a signal that the regulator will not allow a significant deterioration in the labor market and the economy.

It should be noted that on Friday the quarterly expiration of derivatives in the US market will take place, and there is an active transfer of positions to the December expiration. The closing of the current week will be key to determining the medium-term prospects of the markets.

Equity markets in Europe were mostly down yesterday. German DAX (DE40) declined by 0.08%, French CAC 40 (FR40) closed down by 0.57%, Spanish IBEX 35 (ES35) fell by 0.16%, and British FTSE 100 (UK100) closed down 0.68%.

On Thursday, WTI crude oil prices fell to around $70.3 per barrel, declining for the second consecutive session, amid a rising US dollar. While the recent half-point cut in the Fed Funds rate would normally support oil prices, market sentiment was dampened by Fed Chairman Jerome Powell’s statement that the Central Bank would not be in a hurry to ease monetary policy and that the dot plot of the federal funds rate estimate should not be seen as a policy plan.

Asian markets mostly up yesterday. Japan’s Nikkei 225 (JP225) rose by 0.49%, China’s FTSE China A50 (CHA50) gained 0.34%, Hong Kong’s Hang Seng (HK50) added 1.37% and Australia’s ASX 200 (AU200) was positive 0.02%.

The Australian dollar rose to $0.678 as good employment data suggested that the economy remains strong, giving the Reserve Bank of Australia (RBA) room to hold policy. The data showed that the number of jobs in Australia increased by 47,55 in August, well above projections of 25,000. Meanwhile, the unemployment rate remained at its highest level in two and a half years at 4.2%. Markets currently believe that the RBA will not cut interest rates until at least December, with some economists expecting the first move as early as the second quarter of 2025.

The New Zealand dollar rose to as high as $0.621 even after data showed that New Zealand’s economy contracted in the second quarter. Data released on Thursday showed GDP fell by 0.2% in the June quarter, which was better than the RBNZ’s estimate of a 0.5% contraction. On an annualized basis, GDP contracted 0.5%, which was in line with expectations. Markets have now fully priced in the possibility of another quarter-point rate cut in October, and there is a 28% chance of a 50 basis point rate cut.

At Tuesday’s close, the Dow Jones Index (US30) was down 0.04%, while the S&P 500 Index (US500) added 0.03%. The NASDAQ Technology Index (US100) closed positive 0.20%. Yesterday afternoon, equities came under pressure from long liquidations after bond yields rose ahead of the release of the results of the 2-day FOMC meeting on Wednesday.

Retail Sales for August unexpectedly rose by 0.1% m/m, stronger than expectations of a 0.2% m/m decline. US manufacturing production in August added 0.9% m/m, which was stronger than expectations of 0.2% m/m and was the largest increase in the last 6 months. Such data, along with the GDP growth estimates for Q3, allows the US Fed to start the easing cycle with a 0.25% rate hike. Fed Chair Powell’s comments after Wednesday’s meeting will also be scrutinized for further Fed policy intentions. Markets rate the odds of a 25bp rate cut at Tuesday/Wednesday’s FOMC meeting at 100% and a 50bp rate cut at this meeting at 52%.

Equity markets in Europe traded flat yesterday. The German DAX (DE40) rose by 0.50%, the French CAC 40 (FR40) closed higher by 0.51%, the Spanish IBEX 35 (ES35) Index gained 1.06%, the British FTSE 100 (UK100) closed up 0.38%.

The UK’s annual inflation rate for August 2024 remained at 2.2%, in line with July expectations. CPI rose 0.3% from the previous month, after falling 0.2% in July and matched expectations. The latest data had little impact on expectations that the Bank of England will keep policy steady on Thursday.

WTI crude oil prices fell to around $71 a barrel on Wednesday, breaking a two-day streak of gains, amid an unexpected increase in US crude inventories. API data showed US crude inventories rose by 1.96 million barrels last week, breaking a three-week streak of declines and beating market expectations for a 0.1 million barrel decline.

Silver fell below $30.5 an ounce, retreating from two-month highs, as traders grew cautious ahead of the US Federal Reserve’s expected monetary policy decision. In addition, disappointing economic data from China added to concerns about demand in the country, the world’s top metals consumer. Data released over the weekend showed that China’s industrial production, retail sales, and fixed asset investment in August fell short of prognoses.

Asian markets traded mixed yesterday. Japan’s Nikkei 225 (JP225) was down 1.03%, China’s FTSE China A50 (CHA50) did not trade due to a holiday, Hong Kong’s Hang Seng (HK50) was up 1.37%, and Australia’s ASX 200 (AU200) was positive 0.24%.

In Australia, investors await the country’s employment report on Thursday to gauge the state of the labor market and its potential impact on domestic monetary policy. Markets see a 4.35% cut in the money rate at next week’s Reserve Bank meeting as unlikely, given that policymakers have consistently maintained a hawkish stance.

On Friday, the Dow Jones (US30) was up 0.72% (for the week +2.07%), while the S&P 500 (US500) added 0.54% (for the week +3.38%). The NASDAQ Technology Index (US100) closed positive 0.65% (for the week +5.04%). The S&P 500 and Nasdaq100 hit 2-week highs, and the Dow Jones Industrials hit a one-week high.

Former New York FRB President Bill Dudley said Thursday there is a strong case for a 50 basis point interest rate cut at the Fed’s September 17–18 meeting. But Goldman Sachs is still calling for a quarter percentage point rate easing at this week’s Federal Open Market Committee meeting. Markets rate the odds of a 25 bps rate cut at the Sept. 17–18 FOMC meeting at 41% and a 50 bps rate cut at that meeting at 59%.

The US University of Michigan Consumer Sentiment Index for September rose more than expected to a 4-month high, supporting the outlook for a soft landing for the economy, a favorable factor for indices.

Bank of Canada Governor Tiff Macklem opened the door for an increased pace of interest rate cuts: Macklem told the newspaper that regulators are concerned about Canada’s labor market and the possibility that lower oil prices will hit the economy.

Equity markets in Europe rallied on Friday. Germany’s DAX (DE40) rose by 0.98% (up +1.74% for the week), France’s CAC 40 (FR40) closed up 0.41% (up +1.20% for the week), Spain’s IBEX 35 (ES35) increased by 1.23% (up +2.86% for the week), and the UK’s FTSE 100 (UK100) closed positive 0.39% (up +1.12% for the week).

ECB President Lagarde said she is willing to consider an interest rate cut in October if the Eurozone economy suffers a major setback, but a rate cut at the December ECB meeting is more likely as the ECB will have better information on the economy by then. ECB Governing Council spokesman Kazakhs said the ECB would need a downturn in the Eurozone economy for it to cut interest rates at its next meeting in October.

Silver rose to $31, hitting a two-month high, amid growing expectations that the US Federal Reserve will opt for a more aggressive interest rate cut at this week’s meeting. Markets now estimate the probability of the Fed going for a larger 50 basis point rate cut on Wednesday at 59%, up from 25% a month ago, while the probability of a modest 25 basis point rate cut is 41%, according to CME’s FedWatch tool. Those expectations came as signs of a slowing labor market outweighed a better-than-expected reading on key inflation indicators last week.

WTI crude oil prices fell slightly to $68.65 a barrel on Friday, breaking a two-day winning streak. As of Thursday, official data showed that nearly 42% of oil production, which is more than 730,000 barrels per day, remained shut in due to the hurricane. Despite these supply disruptions, oil prices are under downward pressure amid ongoing concerns about sluggish demand in major markets. The IEA has warned of a slowdown in global oil demand growth, particularly due to China’s weakening economy, and predicted a potential supply glut in 2024, even as OPEC+ production cuts continue. Last week, data was released showing a 3.1% year-on-year decline in China’s crude oil imports from January through August 2024.

Asian markets were mostly up last week. Japan’s Nikkei 225 (JP225) rose by 2.17%, China’s FTSE China A50 (CHA50) lost 1.26%, Hong Kong’s Hang Seng (HK50) gained 0.62%, and Australia’s ASX 200 (AU200) posted a positive 1.08%.

China’s economic recovery continues to face major challenges amid persistent weak domestic demand and mounting external pressures, the National Statistics Agency said in a statement. The remarks followed weak activity data in August, marked by the slowest growth in industrial production in five months, and updated retail sales data that missed market estimates. Meanwhile, the urban unemployment rate hit a six-month high of 5.3% in August.