As the North American session begins, the Canadian dollar is the strongest and the Japanese yen the weakest. The US dollar started the day with a mixed performance as US stocks edged up slightly and yields continued to rise despite the Federal Reserve’s 50bp rate cut last week to recalibrate rates given inflation trends. The market is now pricing in a 50/50 chance of a 50bp rate cut in November. The 10-year Treasury yield is now up 18bp from its September 16 low and is on track for a sixth straight day of gains. Crude oil is higher. Gold is modestly lower after closing at another record high yesterday as tensions in the Middle East escalate.
In China, officials announced several measures aimed at stimulating economic growth, with the People’s Bank of China cutting banks’ reserve requirements by 50 basis points to release more liquidity. To support the struggling property market, the government will cut mortgage rates on existing loans, while it also plans to provide 500 billion yuan ($70.8 billion) in liquidity support for local stocks. The measures follow the People’s Bank of China’s recent cut in the short-term repo rate, as officials address persistently low inflation and a prolonged slowdown in the property market, which are hampering growth in the world’s second-largest economy. Stock markets in China and Hong Kong rose more than 4%.
JPMorgan Chase CEO Jamie Dimon reiterated his concerns overnight about the growing risks of global instability, saying geopolitics remains the most significant threat to the global economy. In an interview from India, Dimon warned that geopolitical conditions are worsening with risks from energy supply disruptions and increased involvement of other countries in ongoing conflicts. He specifically pointed to attacks by Yemen’s Houthi rebels on crude oil tankers in the Red Sea. Dimon urged the United States to prepare for a prolonged conflict between Ukraine and Russia, reinforcing his previous warning that geopolitical instability poses a greater risk than inflation or a potential U.S. recession. While he remained bullish on the long term, Dimon expressed skepticism about the U.S. economy in the near term, saying markets were overly optimistic and cautioning against expecting everything to improve quickly.
Dimon has been consistently skeptical about the U.S. economy. So far he’s been more of the “boy who cried wolf” than Nostradamus. But things like geopolitics aren’t problems, and they don’t become problems until the market wakes up one morning and makes them problems. With the U.S. deficit rising and more candidates lining up with promises, promises (Trump is proposing a $10 trillion tax cut. Harris is using some of Trump’s proposals, but she’s proposing higher taxes on the wealthy).
It’s not a problem, until it becomes a problem.
The Reserve Bank of Australia (RBA) was the latest central bank to announce its policy target when it left the cash rate unchanged at 4.35% in September 2024, as expected. The central bank noted that current policy remains restrictive and working as expected, but the outlook remains uncertain. Inflation remains above the 2-3% target range, and bringing it back towards target is the RBA’s priority. The bank stressed that policy will need to remain restrictive until inflation moves sustainably towards target. The RBA remains committed to taking action to control inflation and is leaving options open for future policy moves.
Reserve Bank of Australia Governor Michelle Bullock said interest rates would remain on hold for now, with no rate hikes considered at the latest meeting. She noted that recent data had not materially impacted policy expectations, and while headline inflation could fall within the 2-3% target, core inflation progress remained slow. Bullock stressed that deflation in other major economies was more advanced than Australia’s, and that its policy stance was less restrictive. While no rate cuts were expected in the near term, the RBA was prepared to adjust in any direction based on data. She also highlighted that even if headline inflation hits the target, it does not necessarily mean inflation is fully under control.
Finally, Bank of Japan Governor Kazuo Ueda stressed the need for appropriate and timely monetary policy without committing to a specific timetable, given the uncertainty. He noted that raising interest rates may be appropriate if trend inflation is in line with expectations, but stressed that market developments remain volatile. Ueda is closely monitoring the US and global economic outlook and believes that Japan can take its time to assess market movements. He expects moderate growth in consumption as household incomes rise and sees the impact of wage increases strengthening. He also noted the importance of stable exchange rates and noted that speculative positions on the yen have largely subsided.
In today’s economic calendar:
- Case Shiller July home price data is expected to rise 0.4% on the month (0.4% last month) and 5.9% on the year (vs. 6.5% last month).
- US consumer confidence is expected to rise to 104.0 in September from 103.3 last month.
- The Federal Reserve Composite Index for September is due out with a reading of -19 last month.
Later at 1 p.m., the U.S. Treasury will auction two-year bonds.
Federal Reserve Governor Michelle Bowman is scheduled to speak. Last week, Bowman became the first central banker to oppose a policy decision favored by a Fed chair since 2005, when she favored a 25 basis point rate cut.
Macklem from the Bank of Canada will speak at 1:10 p.m. today. USD/CAD fell yesterday (CAD rallied), but rebounded later in the day. USD/CAD is back down today, looking towards natural support near 1.3500. Yesterday’s low extended to 1.3486 before moving higher. The 100-hour moving average and 100-bar moving average on the 4-hour chart above are at 1.3557. A break above these levels is essential to increase buyers’ confidence in the future technically. Yesterday’s price moved away from a set of moving averages.
A quick snapshot of other markets as the North American session begins:
- Crude oil rose $1.60, or 2.27%, to $71.97. At this time yesterday, the price was at $71.15.
- Gold is trading down $2.41 or -0.09% at $2,625.90. At this time yesterday, the price was $2,623.90.
- Silver prices rose $0.20 or 0.65% to $30.86. At this time yesterday, the price was $30.74.
- Bitcoin is trading at $63,522. At this time yesterday, the price was at $63,458.
- Ethereum is trading at $2639.40. At this time yesterday, the price was at $2646.50.
In the pre-market session, the picture taken by the major indices was trading slightly higher after the S&P and Dow Industrials closed at record highs yesterday:
- Dow Jones Industrial Average futures point to a gain of 35.20 points. Yesterday, the index rose 61.29 points, or 0.15%, to 42,124.65.
- S&P 500 futures are pointing to a 3.68 point gain. Yesterday, the price rose 16.02 points, or 0.28%, to 5,718.57.
- Nasdaq futures point to a gain of 29.05 points. Yesterday, the index rose 25.95 points, or 0.14%, to 17,974.27.
The Russell 2000 index of small-cap stocks fell on Friday by -7,607 points, or -0.34%, to 2,220.28.
European stock indices are mostly trading higher:
- German DAX, +0.53%
- French CAC 40 index, +1.22%
- UK FTSE 100, +0.21%
- Spanish IBEX, -0.13%
- Italy’s FTSE MIB, +0.49% (10 min delayed).
Stocks in Asia-Pacific, China and Hong Kong markets rose after China announced stimulus measures:
- Japan’s Nikkei 225, +0.57%
- China’s Shanghai Composite Index, +4.15%
- Hong Kong’s Hang Seng Index, +4.13%
- Australia’s S&P/ASX, -0.13%
Looking at the US debt market, yields are mixed with the shorter end rising and the longer end falling (flattened yield curve):
- The two-year yield is 3.603%, +2.7bps at this time yesterday, and was at 3.574%.
- The yield on the 5-year Treasury note is 3.539%, +4.3 basis points. At this time yesterday, the yield was at 3.501%.
- The yield on the 10-year note is 3.790%, +5.3 basis points. At this time yesterday, the yield is at 3.750%.
- The yield on the 30-year Treasury note is 4.139%, +5.7 basis points. At this time yesterday, the yield is at 4.099%.
Looking at the Treasury yield curve, it is similar to yesterday’s levels at this time.
- The spread between the 2-10 year bond yield was +18.8 basis points. At this time yesterday, the spread between the 2-10 year bond yield was 17.9 basis points.
- The spread between 2-30 year bond yields was +53.4 basis points. At this time yesterday, the spread was +52.6 basis points.
In the European debt market, yields on 10-year bonds were mostly lower: