Daily Broad Market Recap – September 18, 2024

With the Federal Reserve announcing a further 0.50% rate cut and proposing further monetary easing, how did financial markets react to the news?

Have we seen a uniform reaction across major asset classes or are other headlines taking the spotlight?

Check out the latest market updates!

Headlines:

• New Zealand’s current account deficit widened in the second quarter from NZ$3.83 billion (previous deficit NZ$4.36 billion) to NZ$4.83 billion (expected deficit NZ$3.95 billion)
• Bank of Canada official Rogers said core measures of inflation should be coming down and policymakers want to see more progress.
• Japan’s core machinery orders fell 0.1% m/m (0.4% expected, 2.1% prior) in July
• Japan’s trade deficit Japan’s imports fell from 0.68 trillion yen to 0.60 trillion yen (expected 0.96 trillion yen) as the weaker yen inflated the value of imports, while exports rose 5.6%.
• Australia’s MI Leading Index fell 0.1% in August (previous flat reading)
• API: Private crude inventories rose by 1.96 million barrels (-0.1 million expected)
• UK Core CPI August (2.2% YoY) Core CPI came in at 3.6% y/y as expected; services inflation rose again from 5.2% to 5.6%
• The final reading of consumer prices in the euro area and the core CPI stabilized at 2.2% and 2.8% year-on-year in August, respectively.
• US EIA crude oil inventories down 1.6 million barrels (-0.2 million expected, +0.8 million previously)
• U.S. building permits rose from 1.41 million to 1.48 million, and housing starts rose from 1.24 million to 1.36 million in August.
• The Bank of Canada’s summary of deliberations pointed to weak household spending and residential investment and high unemployment rates.
• The Federal Open Market Committee cut interest rates by 0.50%. In an 11-1 vote, the dot chart forecast suggested an additional 0.50% cut for 2024.
• The Federal Reserve lowered its estimates for headline and core inflation. This year, the unemployment rate forecast is revised from 4% to 4.4%.
• During the press conference, Fed Chairman Powell They stressed their commitment to price stability but also said they had to address labour market risks.

Price movement in the broad market:

Financial markets appeared particularly nervous during the FOMC day, as there was no “calm before the storm” during previous trading sessions.

Crude oil got off to a weak start, giving back most of its gains from the previous New York session, and retreated back to near-term support around $68.65 a barrel when the American Petroleum Institute reported a surprise 1.96 million barrel increase in private oil inventories. However, the energy commodity rallied when U.S. markets opened and got an additional boost from a larger-than-expected 1.6 million barrel drop in crude inventories from the Energy Information Administration.

U.S. Treasury yields rose during the London session, as investors were likely to reduce their bond holdings, before falling sharply after the Federal Reserve decided to cut U.S. borrowing costs by 0.50%.

Gold prices rose after the announcement, but the gains were quickly reversed when Powell dampened hopes for more aggressive easing steps in the near term.

US stocks were trading cautiously ahead of the FOMC announcement, with the larger-than-expected rate cut appearing to have sparked a short-lived rally in risk markets. However, the indexes quickly recovered their gains after the FOMC announcement to close slightly higher at the end of the day.

Forex Market Behavior: US Dollar vs Major Currencies:

US Dollar Overlay Against Major Currencies Chart by TradingView

The US dollar started the day lower against its counterparts in the foreign exchange market, especially against the yen, which received a boost from better-than-expected Japanese trade data. As it turned out, the country’s trade deficit narrowed even as the currency’s depreciation inflated the value of imports, thanks to a 5.6% rise in exports – the ninth straight monthly increase.

The New Zealand dollar also got off to a good start despite a weaker-than-expected current account balance, rising further against the US dollar during the London session before retreating as US markets opened.

The rest of the major currencies appeared to be trading in wider ranges than usual ahead of the FOMC decision, which sparked a broad sell-off in the greenback. After all, Fed policymakers announced a massive 0.50% interest rate cut, the most easing move since the depths of the 2008 financial recession, and the chart forecasts confirmed further rate cuts through the rest of 2024.

However, the US dollar quickly bottomed out and rose to pre-FOMC levels (and higher!) when the press conference was held, where Fed Chairman Powell appeared to downplay expectations of further 0.50% rate cuts in the future and stressed that the economy remained strong. However, the US dollar ended the session slightly lower against most of its peers, except for the Canadian dollar.

Potential catalysts coming up on the economic calendar:

• Australia employment report 1:30 AM GMT
• Swiss Trade Balance at 6:00 am GMT
• Economic forecasts from the Swiss State Secretariat for Economic Affairs (SECO) at 7:00 am GMT
• Bank of England Monetary Policy Decision 9:00 AM GMT
• Initial unemployment claims in the United States 12:30 PM GMT
• Philadelphia Fed Index 12:30 PM GMT
• US Existing Home Sales at 2:00 PM GMT
• GfK UK Consumer Confidence Index at 11:00pm GMT
• Tokyo Core CPI at 11:50 PM GMT

Now that the September FOMC decision is over, are markets headed to hit the snooze button and call it a day? Probably not!

There is no shortage of major events on our economic calendar today, starting with the release of the Australian August jobs report during the Asian session, followed by the Bank of England’s monetary policy decision during London market hours. Adding to that are Uncle Sam’s initial weekly jobless claims and the Philadelphia Fed’s index, which tend to drive USD volatility throughout the day.

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