Interest Rate Cut Fuels Nervous US Market?
This time, Next Week.
By this time next Sat, 21 Sep 2024, it is hoped that some semblance of “normal” would return to the US market.
Statement is derived, basing off facts that:
US’s first interest cut would have been announced.
US market would have approx. 2.5 days to react (Wed, 18 Sep 2024 half day inclusive) to react to it.
US weekly jobless claims (for week ending 14 Sep 2024) released, further “proof” of US economy’s health status.
2024’s 3rd Quadruple Witching would have been over by Fri, 20 Sep 2024.
Separately, analysts are also anticipating US market would start shifting into high gear as US presidential election on Sat, 05 Nov 2024 draws closer by the day.
Where Are The Clues?
Below are clues that are fueling Wall Street’s analysts’ “positive” sentiments ? (see below)
(1) Producer Price Index (PPI) - August 2024.
US producer prices increased slightly overall for August 2024 when compared to July 2024’s data.
Producer Headline inflation:
PPI (MoM) : was 0.2%, marginally higher than forecast (0.1%) and +0.2% higher than July’s data.
PPI (YoY) : was 1.7%, lower than forecast (1.8%) and -0.4% lower than from July’s PPI (YoY).
Core Producer Price Index.
Core PPI (MoM): was 0.3%, marginally higher than forecast (0.2%) and definitely higher than July’s PPI (MoM) of -0.2%.
Core PPI (YoY): was 2.4%, lower than forecast of 2.5% and marginally higher than downwardly revised July Core PPI (YoY) of 2.3%.
Overall, it is the MoM data that was coming in higher, compared to the YoY data; similar to Core Consumer Price Index (MoM) August data.
(2) US Weekly Jobless Claims.
For week ending 7 Sep 2024, number of Americans filing new applications for unemployment benefits increased by 2,000 claims to 230,000. (see above)
Also, last last week’s claims were revised marginally higher to 228,000 from 227,000 claims.
In summary, latest jobless claims report suggests:
US economy continues to exhibit robust employment conditions.
The low level of claims indicates that employers are largely retaining their workforce, reflecting confidence in economic stability.
Resilience in the job market is a positive sign for the broader economy, suggesting continued consumer spending and economic growth.
(3) Consumer Sentiments report.
On Fri, 13 Sep 2024, the University of Michigan Consumer sentiments report was released. (see above)
Based on the latest survey, consumer sentiments rose for a 2nd consecutive month.
Preliminary Sept. reading came in at 69:
Topping August’s final reading of 67.9 by +2% and
Average economist forecasts of 68.2.
According to FactSet, September reading is the strongest level of sentiment since May 2024.
Customers felt buying conditions had improved for durable goods, eg. vehicles, appliances and furniture, according to the survey
Looking ahead one year, consumers’ feelings about their personal finances and the economy as a whole also ticked up
(4) CME FedWatch Tool.
On Thu, 12 Sep 2024 morning, I had a post on US cooling consumer price index (click here ! to read for free!).
In the post I had also shared the “latest” CME Fedwatch tool’s probability on the Fed’s first interest cut in 14.5 months, since the last interest hike in July 2023.
Probability of a -0.5% interest cut was 15%.
Probability of a -0.25% interest cut was 85%.
All that have changed since.
The revision trigger could be traced back to a Thu, 12 Sep 2024 Wall Street Journal (WSJ) report on Fed policymakers considering whether to reduce rates by a regular quarter point or opt for half a percentage point. (see above)
With that, the about-face for CME Fedwatch tool on interest cut probability as well: (see below)
As of Sat, 14 Sep 2024:
Chance of a -0.25% interest cut. has risen to 50% from 15%.
Chance of a -0.50% interest cut. has fallen to 50% from 85%.
What is true is that time is running out before the Fed’s Sep 17-18 meeting.
The stage has been set for a volatile US market next week :
As traders attempt to gauge whether they are adequately positioned for either a quarter- or half-point move by the Fed,
How the few remaining data points, including other economic report/s that will be factor into the Fed’s thinking.
(5) Other Economic Reports - Next week.
Below are some economic reports due the week beginning 15 Sep 2024.
US Retail Sales - Tue, 17 Sep 2024.
US Home Builder Confidence - Tue, 17 Sep 2024.
FOMC interest rate decision & Fed Chair’s press conference - Wed, 18 Sep 2024.
US Weekly jobless claims - Thu, 19 Sep 2024.
Probably US retail sales report might be the last data set referenced by US central bank before their interest rate cut announcement on Wednesday afternoon.
US Retail Sales - August 2024.
Market estimates for US retails sales MoM (August 2024) is expected to be range bound between -0.2 to 0.2.
It will be a “fall” from July 2024 MoM data of 1.0%.
Forecast is “consistent” with the concept of a cooling inflation where rational consumers will be tightening their belts to weather through the economic situation.
US Retail Sales over a 2 year period
Overall, US retail sales (MoM) for Year 2024 has been traced to be hoovering between -0.8 (Jan) and 1.0 (Jul):
It improved from January 2024 to March 2024.
Then stayed flat from April 2024 to June 2024.
Suddently spiked in July 2024.
A pull back in August 2024 seems “logical”, question is should it such a drastic dip as per forecast?
My viewpoint: (mine only)
Many analysts, including even ex-Fed members (William Dudley) have weigh-in on next week’s interest cut; extolling the need for a -0.5% interest cut. (see below)
He is of the opinion that a slowing US labour market with risks to jobs - a greater challenge than a lingering inflation, when calling for a -0.5% interest cut.
He also referred to Fed Chair Mr Powell’s comments at Jackson Hole last month, where Mr Powell underscored not wanting to see further weakness in labour.
Although these were salient points raised in defense of a -0.5% interest cut, I still believe that a -0.25% interest cut is on the card because the US economy is still managing. (see below)
US Q2 2024 quarterly GDP preliminary results have been published on 25 Jul 2024 and 29 Aug 2024.
They were 2.8% and 3.0% respectively. (see above)
This is easily double its Q1 2024 data, clearing indicating that the US economy is still resilient.
Latest August 2024 non-farm payroll (142,000 jobs) also recovered some +59.55% of lost grounds; when compared to July 2024 jobs data of 89,000 jobs.
In my opinion, -0.25% interest cut remains firm. And I strongly believe US market will be volatile until after the Fed’s FOMC press conference on Wed, 18 Sep 2024 afternoon.
In like of a possible nervous market, does it present the last “buying” opportunity before US market scales to new height from October 2024 onwards ?
Some possible considerations:
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$Exxon Mobil(XOM)$ - refer to my post (click here ! for details, help to Repost & Like)
$Lumen Technologies(LUMN)$ - refer to my post (click here ! for details, help to Repost & Like).
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Do you think the Fed will embark on a -0.25% interest cut, given above supporting facts.
Do you think the Fed will take a leap of faith and go for the “bold” -0.5% interest cut instead, caving into market opinions pressures.
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