Surprise 50bps rate cut by Fed signals green light for equities, BoE and BoJ not expected to be eventful

Notes/observations

- Risk appetite in full flow, despite choppy trade initially following Fed’s surprise 50bps rate cut yesterday. Asia and EU equities soar, led by tech and growth. In FOMC post rate presser, Powell said 50 would not be the normal pace going forward, that the economy is growing at a ‘solid pace’ and job market is cooling but not deteriorating. Decision seen more as a re-calibration and attempt to keep economy growing at current pace. Noteworthy that Bowman dissented for 25bps, first since 2005.

- No time to rest as seven rate decisions on today’s schedule, highlighted by BOE at 07:00 ET and BOJ overnight. BOE expected to keep policy on hold, with minority call for 25bps cut. Sideline focus being given to potential change in pace of QT with small call for increase of annual pace from £100B to £120B. There will be no update to staff projections or press conference.

- Norwegian Krone rallied ahead of decision, before Norges went with a hawkish hold, giving NOK additional boost. Sees policy held at 4.5% until end-2024 and then gradually reducing in Q1 2025.

- EU reportedly set to warn Apple that it must open its OS to be fully functional with other technologies, or risk significant fines.

- Asia closed higher by +0.2-2.2%. EU indices are +0.4-1.8%. US futures are +1.0-1.9%. Gold +1.0%, DXY +1.0%; Commodity: Brent +1.1%, WTI +1.2%; Crypto: BTC +4.0%, ETH +6.0%.

Asia

- New Zealand Q2 GDP Q/Q: -0.2% v -0.4%e; Y/Y: -0.5% v -0.6%e.

- China Aug Swift Global Payments (CNY): 4.7% v 4.7% prior.

- Australia Aug Employment Change: +47.5K v +26.0Ke; Unemployment Rate: 4.2% v 4.2%e.

- Hong Kong Monetary Authority (HKMA) cut its base rate by 50bps from 5.75% to 5.25% [tracks the US Fed as its currency is pegged to USD].

Global Conflict/tensions

- New explosions in southern suburbs of Beirut, Lebanon; Reportedly another type of device, hand held radios, are the source of the explosions.

- US officials said to be monitoring situation between Israel/Lebanon after recent attacks on Hezbollah telecoms systems.

Americas

- FOMC cut Target Range by 50bps (more-than-expected) to move into easing. Vote to cut by 50bps was not unanimous (11-1) with Bowman dissenting in favor of 25 bps (first dissent from Fed Governor since September 2005; First hawkish dissent since March 2022 [Bullard]). Statement noted that the Fed had gained greater confidence in inflation moving sustainably toward 2%, judged risks to employment and inflation goals were roughly in balance.

- Fed Dot plot projected 100bps of cuts in 2024 and 2025;

- Fed Chair Powell post rate decision press conference noted that Fed would go meeting-by-meeting on decisions; Nothing about the SEP projections suggested that it was in a rush; Could go quicker, slower, or pause if appropriate. Upside risks to inflation had diminished and downside risks to labor market had risen. Stressed that decision to cut by 50bps reflected growing confidence that strength in labor market could be maintained.

- US July Total Net TIC Flows: $156.6B v $92.0B prior; Net Long-term TIC Flows: $135.4B v $80.5B prior (**Note: Foreign holdings of US Treasuries rose to a record high in July).

- Brazil Central Bank (BCB) raised the Selic Target Rate by 25bps to 10.75% (as expected). Statement noted that the vote for 25bps hike was unanimous. Current scenario required more restrictive monetary policy. Pace of future adjustments would be guided by the firm commitment of reaching the inflation target.

- Bank of Canada (BoC) Summary of Deliberations noted that some members had become more concerned with the downside risks to inflation; Other members took view that inflation risks were balanced.

- US House defeated the Republican stopgap funding bill; Govt shutdown draws nearer.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +1.12% at 520.34, FTSE +0.89% at 8,326.97, DAX +1.23% at 18,951.15, CAC-40 +1.70% at 7,571.36, IBEX-35 +0.41% at 11,732.75, FTSE MIB +0.94% at 33,972.00, SMI +0.79% at 12,070.60, S&P 500 Futures +1.45%].

Market Focal Points/Key Themes: European indices open higher across the board and remained upbeat through the early part of the session; central bank easing seen as supportive of risk appetite; among sectors leading the way higher are consumer discretionary and materials; lagging sectors include telecom and utilities; Close Brothers divests its CBAM unit to Oaktree; NewRiver makes offer to acquire Capital & Regional; reportedly NIO looking to acquire Volkswagen’s plant in Brussels; focus on upcoming rate decision from the BOE; earnings expected in the upcoming Americas session include Lennar, FedEx and Darden Restaurants.

Equities

- Consumer discretionary: Next [NXT.UK] +2.5% (H1 results and raises FY24 guidance), Ocado [OCDO.UK] +8.0% (Q3 trading update, raises FY24 guidance), Swatch Group [UHR.CH] +3.0% (Swiss watch exports), Campari [CPR.IT] +5.5% (Lagfin to acquire €100M of shares).

- Financials: Unicredit [UCG.IT] +0.5% (CEO notes no plans to go above 9% Commerzbank stake at the moment).

- Healthcare:

- Industrials: Volkswagen [VOW3.DE] +2.0% (reportedly plans even higher billion-dollar cuts and larger job cuts), Rolls-Royce [RR.UK] +2,5% (wins deal to build mini nuclear plants in Czech), Babcock [BAB.UK] +3.5% (trading update).

- Materials: Wacker Chemie [WCH.DE] +0.5% (affirms long term targets ahead of CMD).

- Real Estate: Deutsche Wohnen [DWNI.DE] +22.5% (domination and profit and loss transfer agreement between Vonovia and Deutsche Wohnen), Alstria Office Reit [AOX.DE] +62.5% (received squeeze-out demand regarding shares of minority shareholders).

Speakers

- ECB’s Centeno (Portugal, dove) commented that ECB might have to accelerate rate cuts to avoid inflation falling short of forecasts.

- ECB’s Knot (Netherlands) stated that saw further room for rate cuts if inflation outlook held.

- ECB’s Schnabel (Germany) noted that sticky services inflation was keeping headline CPI at an elevated level.

- Norway Central Bank (Norges) Policy Statement noted that a restrictive policy was needed to bring CPI down but the time to ease monetary policy was approaching. It fine-tuned its forward guidance noting that the policy rate would likely to be kept at 4.50% until the end-2024 [**Note: prior said: "likely be kept at current level for some time"] and saw rates being gradually reduce from Q1.

- Norway Central Bank (Norges) Gov Bache post rate decision press conference noted that the rapid inflation decline was not expected to continue.

- Norway Central Bank updated its Staff Projections which cut 2024 Mainland GDP growth forecast from 0.8% to 0.6% and cut 2025 Mainland GDP growth from 1.3% to 1.1%. Projections cut 2024 CPI forecast from 4.0% to 3.7% and cut 2025 CPI forecast from 3.4% to 3.0%. Projections maintained the rate path outlook with 2024 Key Policy Rate level maintained at 4.5% and 2025 Key Policy Rate level maintained at 4.1%.

- Swiss Sept SECO Economic Forecasts cut the 2024 CPI from 1.4% to 1.2% and cut 2025 CPI from 1.1% to 0.7%. It raised 2024 GDP growth forecast from 1.2% to 1.6% while cutting 2025 GDP growth forecast from 1.7% to 1.6%.

- Sweden Gov noted it would increase 2025 fiscal spending by SEK60B as focus of govt was shifting from inflation to investing.

- Poland Central Bank (NBP) Member Dabrowski stated that rate cut was possible in March under 'optimistic' scenario.

- Taiwan Central Bank Policy Statement noted that the decision to keep policy steady was unanimous. Global inflation continued to cool down. To adjust monetary policy in a timely way.

- Taiwan Central Bank updated its Staff Projections which maintained 2024 GDP growth at 3.8% and set 2025 GDP growth at 3.1%. Projections raised 2024 Headline CPI forecast from 2.1% to 2.2% while cutting 2024 Core CPI forecast from 2.0% to 1.9%. CBC set 2025 Headline CPI forecast at 1.9% and set 2025 Core CPI forecast 1.8%.

Currencies/fixed income

- USD drifted lower during the EU session after some turbulence following the FOMC decision to cut the target range by 50bps. Green back clawed back from initial loses as markets took noted of Powell statement which made it clear that the 50 basis-point easing did not represent the new pace. Summary of Economic Projections (SEP), the so-called dot-plot, showed that policymakers foresaw two more 25 bps rate reductions in the last two meetings of the year.

- GBP/USD was off its recent 2-year highs of just under 1.33 with BOE decision in focus. BOE was expected to leave its Bank Rate unchanged at 5.00%. Focus of the meeting to be on announcement on the pace of QT for the 12-months beginning in October. Consensus that the BoE will stick with a £100B pace of both passive and active QT.

- EUR/USD at 1.1150 by mid-session. Dovish comments from ECB’s Centeno on quickening the pace of easing failed to dent upside price action for the time being.

- USD/JPY moved off the Asian session highs of 143.94 to test 142.70 by mid-session. BOJ was seen keeping its policy steady later on Friday but focus was on whether conditions were falling into place for another hike this year.

Economic data

- (EU) EU27 Aug New Car Registrations: -18.3% v +0.2% prior.

- (NL) Netherlands Aug Unemployment Rate: 3.7% v 3.7%e.

- (CH) Swiss Aug Trade Balance (CHF): 4.6B v 4.9B prior; Real Exports M/M: -0.2% v -1.5% prior; Real Imports M/M: -0.8% v -0.4% prior; Watch Exports Y/Y: 6.9% v 1.8% prior.

- (NO) Norway Central Bank (Norges) left Deposit Rate unchanged at 4.50% (as expected).

- (EU) Euro Zone July Current Account Balance: €39.6B v €50.5B prior.

- (PL) Poland Aug Sold Industrial Output M/M: -5.2% v -3.8%e; Y/Y: -1.1% v -0.3%e.

- (PL) Poland Aug Employment M/M: -0.3% v -0.1%e; Y/Y: -0.5% v -0.3%e.

- (PL) Poland Aug Average Gross Wages M/M: -1.1% v -1.3%e; Y/Y: 11.1% v 10.4%e.

- (PL) Poland Aug PPI M/M: -0.1% v -0.1%e; Y/Y: -5.1% v -4.8%e.

- (IT) Italy July Current Account Balance: €5.4B v €4.9B prior.

- (GR) Greece July Current Account Balance: €0.3B v €0.3B prior.

- (PT) Portugal July Current Account Balance: €1.2B v €1.3B prior.

- (HK) Hong Kong Aug Unemployment Rate: 3.0% v 3.0%e.

- (TW) Taiwan Central Bank (CBC) left the Benchmark Interest Rate unchanged at 2.00% (as expected).

Fixed income issuance

- (ES) Spain Debt Agency (Tesoro) sold total €5.55B vs. €5.0-6.0B indicated range in 2028, 2031 and 2043 SPGB bonds.

- Sold €1.40B in 5.15% Oct 2028 SPGB bonds; Avg Yield: 2.463% v 3.184% prior; bid-to-cover: 2.05x v 1.88x prior.

- Sold €2.38B in 3.10% July 2031 SPGB bonds; Avg Yield: 2.692% v 3.132% prior; bid-to-cover: 1.59x v 1.78x prior.

- Sells €1.77B in 3.45% July 2043 SPGB bonds; Avg Yield: 3.527% v 3.650% prior; Bid-to-cover: 1.71x v 1.90x.

- (FR) France Debt Agency (AFT) sold total €B vs. €10-12B indicated range in 2027, 2028, 2030 and 2032 Bonds.

- Sold €4.070B in 2.50% Sept 2027 Oat; Avg Yield: 2.45% v 2.86% prior; Bid-to-cover: 2.48x v 2.37x prior.

- Sold €1.952B in 0.75% May 2028 Oat; Avg Yield: 2.46% v 2.89% prior; Bid-to-cover: 2.95x v 2.07x prior.

- Sold €3.567B in 2.75% Feb 2030 Oat; Avg Yield: 2.62% v 2.65% prior; Bid-to-cover: 2.56x v 2.50x prior.

- Sold €2.407B in 2.00% Nov 2032 Oat; Avg Yield: 2.77% v 2.96% prior; Bid-to-cover: 2.68x v 2.57x prior.

- (SE) Sweden sold total SEK500M vs. SEK500M indicated in 2030 and 2032 I/L Bonds.

Looking ahead

- (IL) Israel Sept 12-month CPI Forecast: No est v 3.0% prior.

- (AR) Argentina Aug Budget Balance (ARS): No est v 908.3B prior.

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-year, 5-year and 10-yeaar bonds.

- 05:40 (UK) BOE 7-day short-term repo operation (STR).

- 05:50 (FR) France Debt Agency (AFT) to sell €1.5-2.0B in inflation-linked 2032, 2040 and 2053 Bonds (Oatei) (4 tranches).

- 06:00 (CZ) Czech Republic to sell CZK5.0B in 3-month Bills.

- 07:00 (UK) Bank of England (BOE) Interest Rate Decision: Expected to leave Bank Rate unchanged at 5.00%.

- 07:00 (UK) Bank of England (BOE) Sept Minutes.

- 07:00 (UR) Ukraine Central Bank (NBU) Interest Rate Decision: Expected to leave Key Rate unchanged at 13.00%.

- 07:00 (TR) Turkey Central Bank (CBRT) Interest Rate Decision: Expected to leave One-Week Repo Rate unchanged at 50.00%.

- 07:30 (DE) ECB’s Nagel (Germany).

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:30 (US) Q2 Current Account Balance: -$260.0Be v -$237.6B prior.

- 08:30 (US) Sept Philadelphia Fed Business Outlook: -1.0e v -7.0 prior.

- 08:30 (US) Initial Jobless Claims: 230Ke v 230K prior; Continuing Claims: 1.85Me v 1.850M prior

- 08:30 (US) Weekly USDA Net Export Sales.

- 09:00 (RU) Russia Gold and Forex Reserve w/e Sept 13th: No est v $616B prior.

- 09:00 (ZA) South Africa Central Bank (SARB) Interest Rate Decision: Expected to cut Interest Rates by 25bps to 8.00%.

- 09:30 (BR) Brazil Aug Tax Collections (BRL): 203.5Be v 231.0B prior.

- 10:00 (US) Aug Existing Home Sales: 3.90Me v 3.95M prior.

- 10:00 (US) Aug Leading Index: -0.3%e v -0.6% prior.

- 10:30 (US) Weekly EIA Natural Gas Inventories.

- 10:40 (DE) ECB’s Schnabel (Germany) on panel at ECB conference.

- 11:00 (CO) Colombia July Trade Balance: -$0.3Be v -$0.6B prior; Total Imports: $5.2Be v $4.7B prior.

- 11:30 (US) Treasury to sell 4-Week and 8-Week Bills.

- 13:00 (US) Treasury to sell 10-Year TIPS Reopening.

- 15:00 (AR) Argentina Aug Trade Balance: $1.4Be v $1.6B prior.

- 15:00 (AR) Argentina Q2 Unemployment Rate: No est v 7.7% prior.

- 19:01 (UK) Sept GfK Consumer Confidence: -13%e v -13 prior.

- 19:30 (JP) Japan Aug National CPI Y/Y: 3.0%e v 2.8% prior; CPI Ex Fresh Food (core) Y/Y: 2.8%e v 2.7% prior; CPI Ex Fresh Food, Energy (core-core) Y/Y: 2.0%e v 1.9% prior.

- 21:00 (CN) China PBOC Monthly Loan Prime Rate Setting (LPR): Expected to leave both 1-year and 5-year LPR unchanged at 3.35% and 3.85% respectively.

- 22:35 (CN) China to sell 20 Year Bonds (Special).

- 23:30 (JP) Japan to sell 3-Month Bills.

- (JP) Bank of Japan (BOJ) Interest Rate Decision: Expected to leave Target Rate unchanged at 0.25%.