Daily Digest: Thursday 19th September
USA
As covered yesterday, the US Federal Reserve cut the bank rate by 50 basis points at the conclusion of their September meet. Heading into Wednesday, I had predicted a 25 basis point cut, leaving the bank rate at 5.25%. This seemed a reasonable assumption based upon the cautious ‘higher-for-longer’ approach adopted by the Fed throughout the year, as inflation data eases but the US economy remains hot. Inflation seemed to hold a higher weight in influencing a stronger policy pivot, with last week’s data for August showing YoY figures had fallen to just 2.5%, 0.5 percentage points above the Fed target. Greater than expected rate cuts can be problematic, overstimulating economic activity and causing inflation rates to rebound, exacerbating the very issues interest rates are manipulated to manage. This will likely lead to increased caution at the FOMC’s penultimate meet of the year in November.
Throughout Thursday’s session, markets were far more receptive of a stronger pivot. By 15:45 GMT, the three major US indices had erased Wednesday’s early losses. The S&P 500 ($SPX) had risen 94.72 points (1.69%) to 5,712.98, the Nasdaq 100 ($NDX) had risen 521.78 points (2.70%) to 19,866.27, and the Dow ($INDU) had risen 461.40 points (1.11%) to 41,964.50.
Europe
The focus of Thursday shifted away from the US federal reserve and FOMC onto the UK’s BoE’s Monetary policy as they concluded their September meet. The Bank of England unanimously voted to hold interest rates at the current level of 5%, marking a pause in policy following a 25 basis point reduction in August. Forward guidance from policymakers remains lightly dovish, but like the Fed, there was no indication of the speed of expected future interest rate adjustments.
UK listed equities traded higher through the session as markets adjusted to Wednesday’s Fed cut and the BoE’s September decision. As of the close, the FTSE 100 (FTSE) had gained 75.04 points (0.91%) moving to 8,328.72. Meanwhile, on the continent, the STOXX 600 (€SXXP) rose 7.08 points (1.38%) to 521.67. In term of regional specifics, the French benchmark CAC (€FCHI) rose 170.51 points (2.29%), while the German DAX (€GDAXI) rose 290.89 points (1.55%) to 19,002.38, having set new 52-week highs earlier in the session.
Rest of the World
Asian markets were the first to price in Wednesday’s Fed rate cuts following a fairly muted session in terms of equity activity. The Japanese benchmark index, the Nikkei 225 (¥N225) saw the largest gains, rising 775.16 points (2.13%) to 37,155.33, while the Chinese Shanghai Stock Exchange Composite Index (¥SSE) rose 18.74 points (0.69%) to 2,736.02, and India’s Nifty 50 (₹NSEI) rose 775.16 points (2.13%) to 37,155.33.
What to watch Tomorrow
BOJ Monetary Policy Meet
Japanese Interest Rate Decision
BOJ Monetary Policy Statement
UK Retail Sales (MoM)
Sources:
https://uk.finance.yahoo.com/world-indices/
https://uk.finance.yahoo.com/commodities
https://www.londonstockexchange.com/indices/ftse-100
https://www.binance.com/en-GB/price/bitcoin
https://www.binance.com/en-GB/price/ethereum
https://qontigo.com/index/sxxp/
Stock Market Activity Today & Latest Stock Market Trends | Nasdaq
https://coinmarketcap.com/charts/#market-cap
https://www.forexfactory.com
Definitions:
YoY - Year on Year, or, Year over Year
MoM - Month on Month, or, Month over Month
QoQ - Quarter on Quarter, or, Quarter over Quarter
ECB - European Central Bank
BOJ - Bank of Japan
Fed - Federal Reserve
BOE - Bank of England
SNB - Swiss National Bank
DOJ - Department of Justice