Fed’s Expected Rate Cut and Market Reactions
by Andre Janse van Vuuren and Julien Ponthus
Market Performance Ahead of Fed Decision
Stock markets have reached new all-time highs as traders await the final assessment of the U.S. consumer behavior just a day before the Federal Reserve is anticipated to implement its first interest rate reduction of the year.
Current Stock Trends
U.S. stock futures showed slight increases after the S&P 500 surpassed the 6,600 threshold on Monday. Meanwhile, MSCI’s index for Asian shares achieved a record high and is positioned for its best performance in nearly five years. In contrast, Europe’s primary index dipped by 0.3%, primarily influenced by declines in the insurance and telecommunications sectors.
Upcoming Economic Indicators
Traders are closely monitoring U.S. retail sales data as indications for upcoming trends.
Gold Prices and Currency Movements
Gold has nearly reached $3,700 per ounce, continuing its record-breaking rally, driven by expectations of potentially four quarter-point cuts by the Fed by January. The dollar weakened against all major currencies, hitting its lowest level since July. Treasury yields fell, with the 10-year rate down one basis point to 4.03%.
Retail Sales Forecast
Before the Fed’s interest rate announcement, August retail sales are projected to show a 0.2% rise, following stronger performances in the previous two months. There are concerns about how long consumers will maintain their spending habits amid a softening job market and rising prices.
Analyst Insights
Chris Weston, head of research at Pepperstone Group, indicated that an unexpected spike in retail sales would be necessary to significantly alter the market’s risk outlook. The expected quarter-point cut at Wednesday’s meeting has the potential for a half-point reduction, given the signs of a rapidly slowing job market.
Additional Market Updates
Mabrouk Chetouane from Natixis Global Asset Management expressed confidence in a “risk-on” approach, viewing the shift towards monetary easing in the U.S. as a favorable trend. He believes the anticipated Fed rate cuts will ease market tensions without fueling inflation. Additionally, a U.S. appeals court has blocked President Trump from dismissing Governor Lisa Cook as her lawsuit challenges the action. Furthermore, Trump’s economic adviser Stephen Miran received Senate confirmation to join the Fed board.
