A ‘one and done’ 50 bps rate cut?

The Daily Shot: 19-Sep-24
The United States
The United Kingdom
The Eurozone
Asia-Pacific
Emerging Markets
Commodities
Energy
Equities
Credit
Rates
Global Developments
Food for Thought



 

The United States

1. The Fed implemented a 50 bps rate cut, signaling concerns about the labor market.
 

 
However, Chair Powell downplayed the likelihood of further outsized rate cuts moving forward.

I do not think that anyone should look at this and say, ‘Oh, this is the new pace.’ I think we’re going to go carefully, meeting by meeting, and make our decisions as we go.

The FOMC projections signal another 50 bps of cuts this year, followed by 100 bps in 2025 and 50 bps in 2026. Markets interpreted Powell’s comments and the rate projections as somewhat hawkish. Here is the dot plot.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
The FOMC statement indicated that employment and inflation goals are now “roughly in balance.”
 

 
Bloomberg’s FOMC statement sentiment indicator is still in hawkish territory.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
The FOMC raised its projections for unemployment while lowering its inflation forecasts.
 

 
The FOMC sees inflation risks as subsiding but still skewed to the upside, …
 

 
… while viewing unemployment risks as increasing.
 

 
“Higher for longer.” The FOMC once again raised its longer-run projections for the fed funds rate.
 

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2. The market scaled back its rate cut expectations following Powell’s comments and the FOMC’s rate projections.
 

 
Treasury yields rebounded after the initial drop.
 

 

 
The yield curve steepened.
 

 

 
The dollar also rebounded, closing higher.
 

 
Stocks sold off but are surging this morning.
 

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3. Next, we have some updates on the housing market.
 
Mortgage applications jumped last week, …
 

 
.. as rates close in on 6%.
 

 
Mortgage applications are nearing a year-over-year gain for the first time since 2021.
 

 
Refi activity accelerated.
 

 
Listings increased last week.
 
Source: AEI Housing Center  
 
Residential construction jumped last month, …
 

 
… boosted by single-family housing.
 

 
Source: Reuters   Read full article  
 
Gains in building permits were less pronounced.
 

 
Here are the seasonally adjusted indices.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
Multifamily completions are surging, which should ease rent inflation.
 
Source: @markets   Read full article  
 
Almost 40% of homeowners do not have a mortgage.
 
Source: Torsten Slok, Apollo  
 
Foreign purchases of US homes have been slowing.
 
Source: The World Property Journal   Read full article  


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The United Kingdom

1. The headline CPI held at 2.2%, …
 

 
… but core inflation increased last month.
 

 
Core CPI gains were primarily driven by services inflation, …
 

 
… with UK rental costs continuing to surge.
 

 
Source: Reuters   Read full article  
 
Retail price inflation was a bit higher than expected.
 

 
Producer price growth is back at zero.
 

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2. The pound jumped after the CPI report, outperforming other DM currencies.
 

 

 
Gilt yields were higher as well.
 

 
3. The market expects another 50 bps of BoE rate cuts this year.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
4. Home price appreciation slowed in July.
 


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The Eurozone

1. The euro declined after the “hawkish” Fed rate cut.
 

 
2. Euro-area construction output remains firmly below last year’s levels.
 

 
3. Wage growth continues to moderate.
 
Source: Nomura Securities  
 
4. Will the markets boost ECB rate cut expectations?
 
Source: Nomura Securities  


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Asia-Pacific

1. Has Japan’s stock market decline been overly steep, considering the strong earnings performance?
 
Source: Oxford Economics  
 
2. Singapore’s electronics exports are up 35% year-over-year.
 

 
3. New Zealand’s Q2 GDP decline was milder than expected.
 

 
4. Australia’s job gains topped expectations, driven entirely by part-time jobs.
 

 
Source: @economics   Read full article  
 
The unemployment rate edged lower.
 

 
Labor force participation is at record highs.
 

 
Job ads signal a softening in Australia’s labor market.
 

 
The Aussie dollar jumped in response to the employment report.
 


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Emerging Markets

1. Brazil’s central bank raised rates after a period of monetary easing, …
 

 
Source: @economics   Read full article  
 
… as the economy strengthens. This type of reversal gives many central bankers nightmares.
 

 
The real gained.
 

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2. Indonesia’s central bank cut rates for the first time since 2020.
 

 
Source: Reuters   Read full article  

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3. South Africa’s inflation surprised to the downside.
 

 
Retail sales remain strong.
 

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4. The rupee continues to rally.
 

 
5. How did emerging markets perform in response to the Fed’s 50 bps rate cut?
 
Currencies:
 

 
Equity ETFs:
 


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Commodities

1. Copper is rebounding.
 

 
2. Gold typically performs well after Fed rate cuts.
 
Source: VanEck   Read full article  
 
Gold has been outperforming other precious metals.
 
Source: Gavekal Research  

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3. Sugar prices continue to surge, …
 

 
… up 11% over the past three days.
 

 
4. How did commodity markets respond to the Fed’s 50 bps rate cut?
 


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Energy

1. US crude oil inventories declined last week, while refined product stockpiles were flat.
 

 
Here are the inventory levels.
 

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2. Crude oil is rebounding, with potential resistance at $75/bbl.
 

 
3. Capital Economics expects OPEC+ to gradually unwind production cuts starting in October.
 
Source: Capital Economics  


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Equities

1. Stock futures are surging this morning after selling off on Wednesday.
 

 
2. How did the various components of the US equity markets respond to the Fed’s 50 bps rate cut?
 
Sectors:
 

 
Equity factors:
 

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3. Fund managers remain pessimistic about global growth, in contrast to the ongoing stock market rally.
 
Source: BofA Global Research  
 
4. Has the stock-bond ratio peaked?
 
Source: Gavekal Research  
 
5. Here is how Alpine Macro defines the equity cycles.
 
Source: Alpine Macro  
 
How do equity factors perform across the different regimes (above)?
 
Source: Alpine Macro  

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6. Could lower oil prices enhance the earnings prospects for consumer discretionary companies?
 
Source: Oxford Economics  
 
7. There is a significant mismatch between the US equity market capitalization compared to the rest of the world and the US GDP relative to global GDP.
 
Source: Gavekal Research  
 
8. Here is a look at short interest by sector.
 
Source: S&P Global Market Intelligence  
 
9. How do different sectors respond to declines in the US dollar?
 
Source: Jack Ablin, Cresset Wealth Advisors  


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Credit

1. Fund managers see US shadow banking (such as private credit) as the most likely source for a systemic credit event.
 
Source: BofA Global Research  
 
2. Securitized product issuance strengthened significantly this year.
 
Source: Deutsche Bank Research  
 
3. CMBS spreads have trended lower from the 2023 peak, although downside momentum has stabilized.
 
Source: Damanick Dantes; Bloomberg  
 
4. How did the credit markets respond to the Fed’s 50 bps rate cut?
 


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Rates

1. The 50 bps Fed rate cut caught many investors off guard.
 
Source: Deutsche Bank Research  
 
2. 10-year TIPS are trading at the high end of its historical range (offering potentially more capital gain potential) while breakevens are in the middle of the range.
 
Source: Alpine Macro  


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Global Developments

1. Generally, G10 inflation is moderating, although some components remain elevated.
 
Source: MRB Partners  
 
2. The US dollar index (DXY) is testing support.
 
Source: Gavekal Research  
 
3. Could we see an upturn in global economic surprises?
 
Source: BofA Global Research  


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Food for Thought

1. Trends in EV lease transaction share:
 
Source: @BW   Read full article  
 
2. US online grocery market penetration:
 
Source: @economics   Read full article  
 
3. Household expenditure by category:
 
Source: Bank of America Institute  
 
4. Impact of high temperatures on European birth rates:
 
Source: The Economist   Read full article  
 
5. Top stressors and job satisfaction for teachers compared to other workers:
 
Source: @WSJ   Read full article  
 
6. Cancer has surpassed cardiovascular diseases as the primary cause of death in several affluent nations.
 
Source: @OurWorldInData  
 
7. Key dates for the 2024 US presidential election timeline:
 
Source: The Economist   Read full article  
 
8. The oldest and largest US nuclear missile cluster:
 
Source: @WSJ   Read full article  
 

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