U.S. stocks and the dollar rose on Tuesday as investors awaited the Federal Reserve’s interest rate decision. The market was bolstered by stronger-than-expected retail sales and manufacturing production data, reflecting resilience in the U.S. economy.
Today’s column by Bill Dudley, the former president of the @NewYorkFed, sets out well the arguments for and against a 50 basis point Fed rate cut this week (please see below from @opinion).
As to where he stands:
“I expect the Fed will do 50. I believe Chair Powell favors an… pic.twitter.com/wGr1NNIfqG— Mohamed A. El-Erian (@elerianm) September 16, 2024
Traders on the floor of the New York Stock Exchange were actively engaged, and Treasury yields increased, indicating positive investor sentiment.
The Fed faces a finely balanced set of considerations over whether to cut by 25 or 50 basis points at its meeting that begins today.
The case for 50 comes down to what Fed officials call risk management but what might be thought of as regret minimization. Per former Dallas Fed…
— Nick Timiraos (@NickTimiraos) September 17, 2024
The rise in the dollar reflects the market’s expectation of continued robust economic performance, while European stock indexes also displayed positive trends. The Federal Reserve’s upcoming decision is highly anticipated, with market participants closely monitoring any signals regarding future monetary policy adjustments. The Commerce Department reported that U.S. retail sales unexpectedly rose 0.1% in August, suggesting that the economy remained on solid footing through much of the third quarter.
Axel Merk, president and chief investment officer at Merk Investments, stated, “We obviously are waiting for the FOMC.
Everyone is talking about whether the Fed will cut interest rates by 25 or 50 basis points.
But, what actually happens to the stock market when the Fed starts cutting rates?
History says a large move is coming for stocks.
Here's how you can get ahead of the move.
(a thread)
— The Kobeissi Letter (@KobeissiLetter) September 17, 2024
Fed anticipation boosts U.S. market
That’s probably the overarching theme and we’ve had some moves with economic data that have come out today.”
BREAKING: Prediction markets are now pricing-in a 48% chance of a 50 basis point Fed rate cut this week.
Odds of a 50 basis point rate cut have gone from 2% to 48% in just 5 days, according to @Kalshi.
This will be the first Fed policy decision without a 90%+ consensus since… pic.twitter.com/FKUZTA090f
— The Kobeissi Letter (@KobeissiLetter) September 16, 2024
Other economic data, such as U.S. business inventories posting a better-than-expected gain of 0.3% in July and factory output rebounding in August, appeared to support a less aggressive stance by the Fed in cutting rates.
The dollar index, which measures the greenback against a basket of currencies, gained 0.22% to 100.93. The euro hovered around $1.111550, not far from the year’s high of $1.1201. Sterling, the best-performing G10 currency this year, was down 0.39% at $1.31635.
The Bank of Japan is expected to keep policy steady on Friday but signal that further interest rate hikes are possible, while the Bank of England is expected to retain interest rates at 5% when it meets on Thursday. Chinese markets are closed for the Mid-Autumn Festival break until Wednesday, but the yuan was up 0.15% at 7.1082 in offshore trade. The Canadian dollar was up 0.07% at $1.35970, and the Australian and New Zealand dollars bought $0.67520 and $0.61840, respectively.
