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Stocks end in red as Fed’s 50bps cut seen as catch-up, not new pace

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Sep 19 24, 03:21 GMT

Despite initial rally, major US stock indexes closed lower after Fed officially began its policy easing cycle with a 50bps rate cut, bringing the target range to 4.75-5.00%. While some may attribute the late selloff to the classic “buy the rumor, sell the fact” dynamic, Fed Chair Jerome Powell’s press conference and the new economic projections pointed to a more cautious pace ahead. These suggested that Fed’s bold move was more about catching up from July’s inaction rather than setting an aggressive pace for future cuts.

Powell acknowledged that Fed “might well have” started lowering rates back in July if the employment data had been available earlier. He emphasized that the 50bps cut was “a sign of our commitment not to get behind” the curve in normalizing rates, calling it “a strong move.” Additionally, he was quick to clarify that this cut is not indicative of a “new pace,” stating, “The economy can develop in a way that would cause us to go faster or slower.”

The updated dot plot also revealed a divided Fed. Of the 19 participants, 10 penciled in another 50bps cut by year-end, bringing rates down to 4.25-4.50%, while 9 saw only a 25bps cut to 4.50-4.75%. This suggests Fed would revert to smaller cuts in the coming months, with November likely seeing a 25bps reduction, followed by another 25bps cut in December, or even a few cuts if inflation risks persist.

This sentiment is reflected in market pricing, with fed funds futures currently indicating around 70% chance of a 25bps cut in November and 30% chance of a larger 50bps move.

Technically, while S&P 500 struggled to sustain above 5669.67 key resistance, and some retreat might be seen in the near term, outlook will stay bullish as long as 5402.62 support holds. Sustained trading above 5669.67 will extend the long term up trend to 61.8% projection of 4103.78 to 5669.67 from 5119.26 at 6086.98 later in the year.

Fed to cut 25 or 50? Stocks, bonds and Dollar await impact

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Sep 18 24, 04:10 GMT

FOMC’s upcoming decision on interest rates is shaping up to be one of the most anticipated in years, with markets still uncertain whether Fed will opt for a 25bps cut or go bolder with a 50bps reduction. As of now, futures markets are pricing in a 65% chance of a 50bps cut, while the remaining 35% lean toward the more traditional 25bps move. Despite this, many economists believe Fed will take a more measured approach, but the decision is likely to reveal a split within the FOMC, with intense debates expected between the hawks and doves on the committee.

Beyond the size of the rate cut, this meeting will offer much more insight into Fed’s thinking. Alongside the decision, markets are eagerly awaiting updates on future rate cut projections, revisions to the closely watched “dot plot,” and new economic forecasts. And together they will create a complex picture for traders to digest.

As for the broader markets, Dollar may likely follow overall risk sentiment, while the Japanese Yen will likely move in response to US Treasury yields.

The stock market is holding its breath after S&P 500 briefly touched a new intraday record before closing with only a slight gain of 0.03%. Technically, decisive break of 5669.67 will confirm up trend resumption. Next target for the rest of the year will be 61.8% projection 4103.78 to 5669.67 from 5119.26 at 6086.98. In case of a pullback, outlook will still be cautiously bullish as long as 5402.62 support holds.

In the bond market, 10-year yield’s down trend from 4.997 is still in progress for 100% projection of 4.997 to 3.785 from 4.737 at 3.525. Some support could be seen there to bring rebound, but outlook will stay bearish as long as 3.923 resistance holds. Decisive break of 3.525 will pave the way to next long term support level at 3.253.

Turning to currency markets, USD/JPY is now sitting close to a key long term fibonacci support, 38.2% retracement of 102.58 (2021 low) to 161.94 at 139.26. Break of 143.03 minor resistance should confirm short term bottoming, and bring stronger rebound back to 55 D EMA (now at 147.71).

However, decisive break 139.26 will suggest that deeper medium term correction is underway. Next near term target is 61.8% projection of 161.94 to 141.67 from 149.35 at 136.82. Next medium term target is 61.8% retracement at 125.25.

Canadian CPI in focus after as BoC’s Macklem signals potential for faster rate cuts

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Sep 17 24, 03:34 GMT

Canadian inflation data is set to take center stage today, particularly after dovish signals from BoC Governor Tiff Macklem hinted at the potential for accelerated monetary easing should the economy weaken further. Progress in disinflation could provide the BoC with more leeway to shift toward a more aggressive policy stance.

Headline CPI is forecasted to decelerate from 2.5% yoy in July to 2.1% yoy in August, edging just above BoC’s 2% target. If realized, this would mark the lowest inflation rate since March 2021. While the bulk of the inflation slowdown is attributed to falling gasoline prices, core inflation metrics are expected to reflect improvement too, with the three-month annualized growth rate projected to ease from July’s 2.6% yoy.

In a recent Financial Times interview, Macklem voiced growing concerns about the labor market’s softening and the impact of lower crude oil prices on the broader economy. He emphasized that as inflation approaches target levels, the “risk management calculus changes,” and the focus shifts toward downside risks.

BoC’s current forecast anticipates 2% economic growth in 2024 and 2.1% in 2025. However, Macklem acknowledged that if these growth projections falter, “it could be appropriate to move faster [on] interest rates.”

Presently, economists expect BoC to cut rates by 25bps at every meeting through mid-2025, bringing the policy rate down to 2.50%. However, weaker economic data could prompt a faster pace of cuts or even a lower terminal rate.

Technically, Canadian Dollar has been sluggish to rally against the greenback even though the latter has been pressured across the board on speculation of a 50bps rate cut by Fed this week. Decisive break of 38.2% retracement of 1.3946 to 1.3439 at 1.3633 in USD/CAD could argue that the decline from 1.3946 has completed. Stronger rally would then be seen to 61.8% retracement at 1.3752 and above.