QuiCQ 19/09/2024
“No one should look at today and assume that this is the pace going forward. We do not think we are behind, but today’s move is a sign of commitment not to get behind.”
FOMC Chairman Jerome Powell, September 18th 2024
As expected, and I hope ya ‘all expected, the Fed cut rates by 50 basis points right now. After all, we were already told Thursday a week ago by the Fed (via Nick Timiraos of WSJ fame) that the cut would be 50. Forward guidance at its best …
Anyhow, the first cut of the cycle was delivered in an outsized manner, but immediately followed by hawkish comments regarding the pace of future cuts. Interestingly, there was one dissident (Michelle Bowman), voting for a 25 bp cut only. But I would not be surprised if that were just part of the dovish delivery, hawkish presser “spiel”. Nevertheless, the market is still expecting two cuts by the end of the year and close to eight cuts into end of 2025.
But what really matters is market reaction, and that was decisively … well … undecisive. Point in case, here is the equity market reaction (via the Nasdaq 100) after the rate cut decision and the ensuing press conference half an hour later (grey box):
The largest reaction probably came from Gold, which shot up to a new all-time high at USD2,599 (before dropping back to below $2,550, currently at $2,580).
Yields reacted as could be expected via a classical sell the rumour, but the fact manor, pushing above 3.70% on the US 10-year Treasury, where they still trade now.
The Greenback sold off immediately after the communication of the 50bp rate cut, then rallied, only to settle back in where it started (e.g. EURUSD 1.1130)
The good news, for eternal optimists such as yours truly, is that equity markets are delivering a respectable rally this early Thursday in Asia, with Japan’s Nikkei and Hong Kong’s Hang Seng index both up by about two percent and European and US futures pointing to a fireworks start to our respective sessions too.
BoE at 13:00 today (no change expected) and BoJ tomorrow (no change expected).
The following two charts has been making the financial social media rounds the past few hours, so if you have seen it already I apologise. However, a tight agenda obliges me to take this short cut today…
Anyway, the first chart shows the path of the stock market (S&P 500) after an initial cut in the cycle was either 25 bp (red) or 50 bp (blue):
From this point of view, we would have preferred red, but we got blue.
The second chart, shows, focusing on the right side of the “First Cut” line, how the market has performed depending on the pace of cuts:
Hence, here we welcome the hawkish post-cut message we got from Powell, telling us not to expect the pace to remain at 50 bp (or faster) per meeting. Our hope remains blue…
