Mike Dolan’s outlook for the day ahead for US and global markets
Wall Street stocks rose sharply on Thursday and were little changed today after the Federal Reserve said the economy is healthy and other central banks were also focused on maintaining stability .
The central banks of Japan and China are on different policy paths and made no decision on interest rates on Friday – a somewhat surprising decision as the Chinese economy is in a dangerous recession.
After the Federal Reserve cut interest rates by 50 basis points on Wednesday, the People’s Bank of China unexpectedly kept its monthly lending rate unchanged, dashing market expectations. About 70% of market participants surveyed earlier this week had expected a rate cut.
Whether it was delayed to coincide with a wider stimulus package later is a matter of debate, but – and perhaps to China’s detriment – it has pushed the offshore yuan to a 16-month high.
Surprisingly, the Bank of Japan also kept its policy settings unchanged on Friday, temporarily refraining from further tightening, at the same time that, in line with expectations, the core consumer inflation rate rose to 2.8% in August.
With Bank of Japan officials in no hurry to further “normalize” ultra-low interest rates , the yen again fell to around 144 against the dollar.
In Europe on Thursday, the Bank of England – which has an eye on the new Labour government’s first budget next month – also refrained from a second rate cut this year. The pound rose to its highest level since March 2022 .
The UK is key to both the Bank of England’s decisions and its budget. The backdrop is mixed – although retail sales rose more than expected in August , consumer confidence fell to a six-month low. However, the fiscal picture turned bleaker last month, with news that public borrowing was higher than expected, with government debt reaching 100% of GDP for the first time since comparable records began 31 years ago .
For Wall Street investors, it’s still a question of “What’s not to like?” That’s a problem.
News of a sharp rate cut from the Federal Reserve, as well as a weekly drop in the unemployment rate, put the “soft landing” firmly on track, sending all stock indexes higher on Thursday, including the S&P 500 (.SPX) and the index’s equal-weighted version (.SPX) .
The tech-heavy Nasdaq (.IXIC) and small-cap Russell 2000 (.RUT) both hit their highest levels since July.
So far this year, the S&P 500 and Nasdaq are both up 20%. The VIX volatility index (.VIX) fell below 17 and is below its long-term average.
Fed futures anticipate that the Fed will cut interest rates by another 50 basis points over the remainder of this year, and currently expects interest rates to be cut by 200 basis points, or 2.9%, over the next 12 months.
U.S. Treasuries seem to be satisfied with this – the 2-year yield is hovering just below a 2-year low of 3.6%, and the difference between the new positive yield curve of 2 and 10 years has risen by 10 basis points for the first time in more than two years. The year above point.
Regarding whether the Fed is too loose, inflation expectations have risen slightly, but are still slightly above the Fed’s 2% target. Crude oil prices have risen this week, especially due to tensions in the Middle East, but oil prices have fallen by more than 20% for two consecutive weeks so far this year.
The US dollar index (.DXY) rose from its lowest level this year as focus turned to other central banks .
Stock index futures were trading slightly below new records ahead of Friday’s close.
Attention may now turn to Federal Reserve officials’ meeting next week , where they could discuss the idea of a sharp rate cut in more detail this week.
The end of the quarter is drawing near, and of course, the November campaign is heating up.
According to the latest polls, the two leading presidential candidates are roughly tied nationally, although Democrat Kamala Harris remains a slight favorite in the betting market.
Key developments on Friday will provide direction for US markets:
* Eurozone consumer confidence index in September, Canadian producer prices in August;
* Philadelphia Fed President Patrick Harker spoke; European Central Bank President Christine Lagarde and International Monetary Fund Managing Director Kristalina Georgieva spoke in Washington; Bank of Canada President Thierry Husband McCallum spoke; Bailey spoke
The views expressed are those of the author. They do not reflect the views of Askume News, which is committed to integrity, independence and non-partisanship under the principles of trust.
