The Fed finally moves

The Fed finally moves

Global market indices
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Fixed Income

Commodity sector news

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ey data to move markets
Global macro updates

Global market indices

US Stock Indices Price Performance

Nasdaq 100 -0.73% MTD +15.49% YTD
Dow Jones Industrial Average 
-0.14% MTD +10.12% YTD
NYSE
-0.50% MTD +13.90% YTD
S&P 500 
-0.53% MTD +17.79% YTD

The S&P 500 is +1.15% over the past week, with 6 of the 11 sectors up MTD. The Equally Weighted version of the S&P 500 posted a +2.15% gain this week, its performance is +0.05% MTD and +11.20% YTD.

The S&P 500 Consumer Discretionary sector is the leading sector MTD, up +3.22% MTD +9.19% YTD, while Energy is the weakest at -3.64% MTD +4.77% YTD.

This week, Communication Services outperformed within the S&P 500 at +4.42%, followed by Energy and Industrials at +4.28% and +2.70%, respectively. Conversely, Information Technology underperformed at -0.33%, followed by Real Estate and Health Care, -0.24% and -0.09%, respectively.

On Wednesday, a stock market rally that briefly propelled indices to record highs encountered resistance following the Fed's indication that it is not inclined towards rapid policy easing, despite implementing a half-point interest rate cut. 

US stocks subsequently experienced a slight decline. The S&P 500, the Dow Jones Industrial Average, and the Nasdaq Composite initially rose after the Fed's announcement, but these gains were later relinquished, resulting in a negative close. As of 5 pm EDT, the Dow had fallen by 103 points, or -0.25%, while the Nasdaq Composite Index and the S&P 500 were -0.3%.

The Fed's decision to have the first cut be an “outsized” cut may now allow investors to redirect their focus towards the intrinsic value of individual equities.

Chairman Powell's press conference following the announcement stressed that officials are not currently harbouring significant concerns about any specific aspect of the real economy. However, he justified the size of the cut by stating that it was better to do this while the economy was still strong as it would reduce the chances of a downturn, i.e., he seemed to indicate that this was the best way to achieve a soft landing while moving towards a more neutral stance. 

“The US economy is in a good place and our decision today is designed to keep it there,” Fed chair Jay Powell said at a news conference on Wednesday. “This recalibration of our policy stance will help maintain the strength of the economy and the labour market and will continue to enable further progress on inflation as we begin the process of moving towards a more neutral stance.”

It is noteworthy that, even within the context of the classic "buy the rumour, sell the fact" dynamic, the actual implementation of a 50 basis-point cut was met with selling pressure.

In corporate news, a US security panel has granted Nippon Steel permission to refile its plans for a $14.1 billion acquisition of United States Steel. This is likely to delay a decision on the politically sensitive takeover until after the US elections in November.

Qualcomm faced a setback in a EU court battle, losing its appeal against a multi-million euro fine related to allegations that the company engaged in predatory pricing practices to undermine a smaller competitor.

T-Mobile articulated its growth objectives for the next three years on Wednesday, forecasting increased profits driven by customer acquisition and bolstered by emerging technologies, including artificial intelligence. 

US stocks

Mega caps: A mixed week for the ‘Magnificent Seven’ due to an ongoing rotation to sectors that are more sensitive to economic cycles. Alphabet +3.31%, Amazon +1.04%, Apple -0.88%, Meta Platforms +5.10%, Microsoft +1.84%, Nvidia -3.03%, and Tesla -1.14%.

Google’s parent company, Alphabet, achieved a favourable outcome in a legal dispute with the European Union regarding a €1.5 billion ($1.7 billion) fine. The fine had been imposed for alleged anti-competitive practices in the online advertising market. This victory provides some solace for Google, following a significant setback last week in a separate case where it was found to have abused its dominant market position.

Energy stocks had a positive week, as the Energy sector itself was +4.28%. The sector’s YTD performance is +4.77%. Over the week Apa Corp (US) +6.35%, ConocoPhillips +5.90%, Baker Hughes +5.28%, ExxonMobil +4.43%, Chevron +4.41%, Phillips 66 +4.25%Halliburton +3.85%, Marathon Petroleum +3.82%, Occidental Petroleum +2.15%, and Shell +1.75%, while Energy Fuels -3.48%.

Mitsubishi explores offtake and equity participation in ExxonMobil's Baytown project.Mitsubishi and ExxonMobil have signed a project framework agreement to explore Mitsubishi's participation in a low-carbon hydrogen facility in Baytown, Texas. Discussions will focus on Mitsubishi's offtake of low-carbon ammonia for power generation and industrial use in Japan, and potential equity participation in the project.

Mitsubishi plans to convert part of its LPG terminal into an ammonia terminal for transshipment to various industries in Japan. A final investment decision is expected in 2025, with startup anticipated in 2029.

Additionally, Mitsubishi intends to partner with Idemitsu Kosan for joint equity and ammonia offtake from the Baytown facility.

Materials and Mining stocks had a positive week, as the materials sector was +2.49%, bringing the sector’s YTD performance to +8.68%. Sibanye Stillwater +29.29%, Freeport-McMoRan +6.34%, CF Industries +5.22%, Newmont Corporation +4.57%, Yara International +4.46%, Mosaic +3.98%, and Nucor +3.78%, while Albemarle -3.03%.

Nucor issues Q3 earnings guidance. Nucor has issued guidance for its Q3 2024 EPS, projecting a range of $1.30 to $1.40, excluding one-time items. This forecast falls below the FactSet consensus estimate of $1.81. 

The guidance excludes approximately $123 million in one-time non-cash pre-tax charges, or $0.43 per share, related to the impairment of certain non-current assets in the raw materials and steel products segments. 

Excluding these charges, the primary factor contributing to the anticipated decrease in earnings in Q3 compared to Q2 of 2024 is attributed to lower average selling prices within the steel mills segment. The steel products segment is also expected to experience decreased earnings in Q3 due to both lower average selling prices and reduced volumes.

During Q3, Nucor repurchased approximately 2.5 million shares at an average price of $156.07 per share. This brings the YTD total to approximately 11.0 million shares repurchased at an average price of $172.36 per share. Nucor will release its Q3 earnings report after the markets close on Monday, 21st October, 2024.

European Stock Indices Price Performance

Stoxx 600 -1.99% MTD +7.43% YTD
DAX 
-1.03% MTD +11.70% YTD
CAC 40 
-2.44% MTD -1.30% YTD
IBEX 35 
+2.48% MTD +15.67% YTD
FTSE MIB 
-2.09% MTD +10.89% YTD
FTSE 100 
-1.47% MTD +6.73% YTD

This week, the pan-European Stoxx Europe 600 index was +1.29%, closing at 514.59. It was -0.50% on Wednesday.

In the STOXX Europe 600, Travel & Leisure is the leading sector so far this month, up +3.85% MTD +3.34% YTD, while Autos and Parts is the weakest at -6.68% MTD -9.30% YTD.

This week Retail outperformed within the STOXX Europe 600 with a +6.97% gain, followed by Basic Resources and Oil & Gas at +4.87% and +3.39%, respectively. Conversely, Food & Beverage underperformed at -1.39%, followed by Health Care and Personal & Household Goods, -1.16% and -0.58%, respectively.

Germany's DAX index was -0.08% on Wednesday and closed at 18,711.49. It was +2.08% for the week. France's CAC 40 index was -0.57% on Wednesday, closing at 744.90. It was +0.65% for the week.

The UK's FTSE 100 index +0.73% this week to 8,253.68. It was -0.68% on Wednesday. 

In Wednesday’s trading session, the Auto & Part sector emerged as the top performer, +0.18%. The sector Oil & Gas also exhibited strength, +0.13%. In contrast, the Food & Beverage sector lagged, falling -1.02% on Wednesday.

Other Global Stock Indices Price Performance

MSCI World Index -0.57% MTD +14.87% YTD
Hang Seng
 -1.83% MTD+3.59%YTD

This week, the Hang Seng Index was +3.72%, while the MSCI World Index was +1.73%.

Currencies

EUR +0.60% MTD +0.70% YTD to $1.1119
GBP
 +0.55% MTD +3.66% YTD to $1.3215

The euro was +0.91% against the USD over the past week, while the British Pound was +0.59%. The Dollar Index was -0.74% this week, -0.75% MTD, and -0.40% YTD.

The dollar experienced a slight decline in volatile trading following the Fed's decision on Wednesday to reduce interest rates by half a percentage point. The central bank cited increased confidence that inflation will continue its downward trajectory towards the 2% annual target.

The Fed lowered the overnight rate to the 4.75% - 5.00% range, and policymakers anticipate a further half-percentage-point reduction in the benchmark rate by the end of the year.

Initially, the dollar weakened after the Fed's announcement, but it subsequently recovered some of those losses following Chair Jerome Powell's press conference.

The dollar index ultimately closed -0.08% lower on the day, at 100.931. It had previously reached 100.21, its lowest point since July 2023. The euro saw a marginal gain of +0.01%, reaching $1.1119.

Sterling appreciated by +0.28%, reaching $1.3200. Conversely, the euro depreciated by -0.25% against the pound, settling at 84.235 pence.

The British pound strengthened against the dollar on Wednesday, buoyed by UK inflation data which showed that August’s inflation was unchanged at 2.2%. Although this was still above the 2% target rate, it was below the 2.4% the BoE itself had predicted at this stage. The Bank of England, as widely expected, held rates at 5% during today’s meeting in an eight to one vote, after it cut rates by a quarter of a percentage point at its meeting last month. BoE Governor Andrew Bailey said the BoE should be able to cut rates “gradually, over time.”

The dollar experienced a minor decline of -0.04% against the Japanese yen, trading at ¥142.10. The BoJ is widely expected to keep rates on hold during its meeting on Friday with expectations of further rate rises over the next few months.

Note: As of 5:00 pm EDT 18 September 2024

Cryptocurrencies

Bitcoin +2.07% MTD +43.62% YTD to $60,312.
Ethereum 
-7.85% MTD +1.41% YTD to $2,328.40.

It was a mixed week for the two major cryptocurrencies. Bitcoin rose +5.02% over the week, while Ethereum posted a -0.76% loss. Bitcoin hit a three-week high Wednesday following the Fed announcement of a 50 basis point cut as the correlation between cryptocurrencies and traditional investments such as equities has increased, signalling that macroeconomic indicators have been affecting the cryptocurrency market. However, US Spot Bitcoin ETFs experienced net outflows on Wednesday of $52.83 million, ending four consecutive days of net inflows that drew in over half a billion dollars. Yesterday’s outflows were led by Ark Invest and 21Shares’ ARKB, which saw $43.41 million, according to data from SoSoValue. On Wednesday, Grayscale’s GBTC reported net outflows of $8.13 million, and Bitwise’s BITB recorded $3.95 million in outflows. Spot Ethereum ETFs experienced $9.74 million of outflows, marking their third consecutive day of net outflows.

Note: As of 5:00 pm EDT 18 September 2024

Fixed Income

US 10-year yield -20.3 bps MTD -17.6 bps YTD to 3.705%.
German 10-year yield
-10.6 bps MTD +18.8 bps YTD to 2.197%.
UK 10-year yield
-16.3 bps MTD +30.7 bps YTD to 3.846%.

US Treasury 10-year bond yields are +4.7 basis points (bps) up this week.

The US Treasury yield curve reached its steepest level since July 2022 on Wednesday, following the Fed's decision to cut interest rates by 50 bps in response to a weakening labour market.

The spread between the two- and 10-year yields widened to as much as 10.2 bps and was last observed at 8.6 bps.

Later in the trading session, US Treasury yields rose amidst volatile market conditions. The 10-year yield increased by +4.6 bps to 3.713%, after reaching its highest point in over a week. This marked the yield's most significant daily gain since 21st August.

Similarly, US 30-year yields climbed +7.6 bps to 4.029%, also recording its largest daily increase in approximately a month. On the shorter end of the curve, US two-year yields advanced by +4.2 bps to 3.634%. 

According to CME Group's FedWatch Tool, the probability of a 50 basis point cut at the November meeting is 32.3%. Following the Fed's rate move, futures on the fed funds rate have priced in about 74 bps of more rate cuts this year despite Fed projections indicating 50 bps of cuts.

The German 10-year yield was +8.1 bps this week, while the UK 10-year yield was +7.4 bps this week. The spread between US 10-year Treasuries and German Bunds currently stands at 150.4 bps, -3.4 bps from last week.

Italian bond yields, a benchmark for the eurozone periphery, were +11.6 bps this week to 3.578%. Consequently, the spread between Italian and German 10-year yields +3.5 bps to 138.1 bps from 134.6 bps last week.

Eurozone bond yields experienced a slight increase on Wednesday, however, investors remained cautious in anticipation of the highly anticipated Fed interest rate decision scheduled for later in the day.

Germany's 10-year bond yield rose by +4.9 bps, reaching 2.197%, its highest level since 9th September. Additionally, Germany's two-year bond yield, which is more closely aligned with ECB rate expectations, increased by +2.5 bps to 2.260%.

Italy's 10-year government bond yield also saw an increase of +15 bps, settling at 3.578%.

The release of final eurozone inflation data for August, which largely aligned with expectations, had minimal impact on bond markets.

Current market pricing indicates a low probability of a ECB rate cut in October. However, a 25 bps cut is fully priced in by December, following the cuts implemented in June and earlier in September. Last week’s decision was accompanied by slight downgrades to projections for eurozone output over the next three years, which suggested that the ECB would be forced to continue to act against a worsening backdrop.

At last week’s ECB press conference following the decision to cut rates to 3.50%, ECB President Christine Lagarde had warned that wages will remain high and volatile, albeit as overall growth in labour costs moderates. She also admitted that the economic recovery “is facing some headwinds” and risks remain tilted to the downside. Given the Fed’s outsized cut yesterday, the ECB may be forced to follow the Fed cutting cycle due to these downside risks and the impact on currency and bond markets.

Commodities

Gold spot +3.08% MTD +24.65% YTD to $2,559.09 per ounce.
Silver
spot +4.30% MTD +26.17% YTD to $30.12 per ounce.
West Texas Intermediate
crude -4.44% MTD -0.95% YTD to $70.47 a barrel.
Brent crude 
-5.37% MTD -5.50% YTD to $72.80 a barrel.

Spot gold prices are up +2.33% this week. Nonetheless, gold prices retreated from their all-time highs on Wednesday, influenced by a strengthening dollar and rising Treasury yields. This shift occurred in the wake of remarks by Federal Reserve Chair Jerome Powell, following the central bank's 50 bps interest rate cut.

Spot gold was -0.45%, settling at $2,559.09 per ounce. This followed a record high of $2,599.92, achieved immediately after the Fed's rate decision announcement.

The dollar's subsequent rebound from its over-one-year low has rendered gold less appealing to investors holding other currencies. Concurrently, the US Treasury 10-year yield climbed to its highest point in a week. 

Oil was up this week on concerns that the impact from hurricane Francine would continue to limit production from in the Gulf of Mexico. WTI is up +4.34% while Brent is up +4.45%. However, on Wednesday, oil prices experienced a slight dip, as investors largely dismissed a decline in crude oil inventories, attributing it to the transient impact of hurricane Francine.

The conclusion of peak summer demand, coupled with a more bearish sentiment among traders, has further contributed to the downward price pressure in recent weeks. However, the potential for conflicts in the Middle East continues to pose a risk of supply disruptions, lessening any significant price declines. 

EIA report: hurricane Francine disrupts US crude imports, stocks at cushing hub lowest in a year. US crude oil stockpiles decreased to their lowest level in a year last week, whereas fuel inventories experienced an increase, according to the Energy Information Administration (EIA)'s report on Wednesday.

Crude inventories declined by 1.6 million barrels, reaching 417.5 million barrels in the week ending 13th September. This surpassed analysts' expectations, which had predicted a 500,000-barrel draw. Excluding the Strategic Petroleum Reserve, stocks reached their lowest point since September of 2023. Crude inventories in the Midwest plummeted to their lowest level since December of 2014.

At the Cushing, Oklahoma delivery hub for US crude futures, stocks decreased by 2 million barrels, according to the EIA. Stockpiles at the Cushing hub now stand at 22.7 million barrels, marking their lowest level in almost a year.

Net US crude imports fell by 1.8 million barrels per day (bpd), as port activity along the US Gulf Coast slowed due to the impact of Hurricane Francine.

The EIA's adjustment number, which monitors unaccounted crude, was 827,000 barrels, representing a change of 1.29 million barrels compared to the previous weeks.

Refinery crude runs decreased by 282,000 bpd, and refinery utilisation rates dipped by 0.7 percentage points to 92.1% of total capacity.

Gasoline stocks rose by 100,000 barrels, reaching 221.6 million barrels. This increase was less than the forecasted 200,000-barrel build. Distillate stockpiles, encompassing diesel and heating oil, increased by 100,000 barrels to 125.1 million barrels. This was lower than the anticipated 600,000-barrel rise.

Note: As of 5:00 pm EDT 18 September 2024

Key data to move markets

EUROPE

Thursday: Bundesbank Monthly report, and speeches by Bundesbank President Joachim Hagel and ECB Executive Board member Isabel Schnabel.
Friday: 
Producer Price Index, Consumer Confidence and a speech by ECB President Christine Lagarde.
Monday:
German HCOB Composite, Manufacturing and Services PMIs, and Eurozone HCOB Composite, Manufacturing and Services PMIs, and French HCOB Composite, Manufacturing and Services PMIs.
Tuesday:
German Business Climate, Current Assessment and Expectations IFO surveys.

UK

Thursday: BoE Interest Rate Decision, BoE Asset Purchase Facility, BoE Minutes, Monetary Policy Report, and GfK Consumer Confidence.
Friday:
Retail Sales, and a speech by BoE’s Monetary Policy Committee member Catherine Mann.
Monday:
S&P Global/CIPS Manufacturing, Services and Composite PMIs.
Wednesday:
A speech by BoE’s Monetary Policy Committee member Megan Greene.

US

Thursday: Initial and Continuing Jobless Claims, existing Home Sales and Philadelphia Fed Manufacturing Survey.
Friday:
A speech by Philadelphia Fed President Harker.
Monday:
S&P Global Composite, Manufacturing and Services PMIs, and speeches by Chicago Fed President Austan Golsbee and Minneapolis Fed President Kashkari.
Tuesday:
Housing Price Index and Consumer Confidence.
Wednesday:
New Home Sales.

JAPAN

Thursday: BoJ Interest Rate Decision and Monetary Policy Statement, and National CPI.
Friday:
BoJ Press Conference.
Wednesday:
BoJ Monetary Policy Meeting Minutes.

CHINA

Thursday: PBoC Interest Rate Decision.

Global Macro Updates

The Fed goes big: hawkish undertones amidst dovish expectations. The Fed's rate cut yesterday, its first in four years, while appearing dovish at first glance, actually conveyed a more hawkish stance. The September FOMC meeting ended with a 50 bps rate reduction, bringing the target range to 4.75 - 5.00%. However, the Fed's latest Summary of Economic Projections (SEP) reveals a median 2024 fed funds rate of 4.375%, implying a total of 100 bps in cuts by year-end, followed by an additional 100 basis points in cuts in 2025. This projection suggests a maximum of two 25 bps cuts at the remaining two FOMC meetings this year. Notably, seven Fed officials anticipate only one more 25 basis point cut, at most, for the remainder of the year. 

The median projection for the end of 2025 was revised downward from 4.1% to 3.375%, with officials largely divided between a 3.25% to 3.50% rate and a 3.00% to 3.50% rate, translating to a total easing of 200 to 225 bps. Governor Bowman dissented, favouring a more conservative 25 bps cut (marking the first dissent by a governor since 2005).

Changes to the official statement were largely as expected, emphasising increased confidence in the trajectory of inflation while acknowledging growing risks surrounding the labour market. The Fed noted that it has "gained greater confidence" that inflation is moving towards its target and that risks to employment and inflation goals are "roughly" balanced. However, it notably stated that job gains have "slowed," a change from the prior description of "moderated."

In the post-meeting press conference, Chair Powell characterised the move as a "recalibration" of policy aimed at maintaining labour market strength, while continuing to emphasise the Fed's data-dependent approach.

However, market projections are now pricing in another 70 basis points worth of rate reductions at the Fed’s two remaining meetings this year, reflecting a more aggressive stance than Fed policymakers have indicated.

While every effort has been made to verify the accuracy of this information, EXT Ltd. (hereafter known as “EXANTE”) cannot accept any responsibility or liability for reliance by any person on this publication or any of the information, opinions, or conclusions contained in this publication. The findings and views expressed in this publication do not necessarily reflect the views of EXANTE. Any action taken upon the information contained in this publication is strictly at your own risk. EXANTE will not be liable for any loss or damage in connection with this publication.

This article is provided to you for informational purposes only and should not be regarded as an offer or solicitation of an offer to buy or sell any investments or related services that may be referenced here.

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