Market Report.
📈 This week will be a very interesting week in the financial markets, especially the Wednesday with the Fed rate decision. Thursday, with the Bank of England rate decision, and Friday, with the Bank of Japan rate decision.
🔻 The Fed is widely expected to cut rates this week for the first time in over 3 years, with more cuts seen as likely in the coming months. Some see risks if the Fed cuts too aggressively and signals more worry than warranted. Analysts debate the optimal pace and total size of cuts needed to defeat inflation without harming the job market. Slower hiring and rising unemployment point to ongoing economic fragility that rate cuts could help address.
💼 Gary Cohn, former Trump economic adviser and chief operating officer of Goldman Sachs, says that weakness in the economy is beginning to show as loans are becoming more expensive and loan delinquencies, a recent Fed report showed auto loan and credit card debt delinquencies at their highest levels in over 10 years. However, he does not expect significant relief for homebuyers from the Fed’s rate cuts scheduled for this week.
🌍 In any case, the Fed’s anticipated rate cut will have wide global implications beyond just the US economy. It may allow other central banks more room to ease, benefiting emerging markets and supporting growth. However, the impact this may have on the value of the dollar is unclear. In principle it should weaken the dollar, but as we have indicated in previous reports, it could also provoke further ECB cuts that result in a bullish EURUSD or simply, fears of growing global uncertainty, make the dollar a safe haven again, increasing demand for assets such as US bonds.
🏦 Regarding the Bank of England: The BOE is expected to hold rates this week but some investors argue it needs a more aggressive response given slowing growth. Markets foresee the BOE cutting rates another 1.25% by early 2026, with some investors betting on steeper moves. Some funds are increasing their holdings of UK government bonds, betting the BOE will ease more than priced. If we look at the UK quarterly growth rate, it has improved, showing growth above expectations in Q1 and Q2, however, the MoM growth rate has shown 0% growth in the last two periods, so it would seem that the economy is stalling and Q3 will disappoint.
🏠 The UK housing market rebounded in September as the BoE cut rates and political uncertainty eased after the election. Average asking prices rose 0.8% in September after a 1.5% drop in August, supported by lower mortgage rates. Year-on-year asking prices were up 1.2%.
🌏 This weekend, we learned new data on China’s sensitive real estate sector, and it is not good. New home prices in China fell 5.3% in August from a year earlier, the fastest decline in more than 9 years. The property sector faces problems such as developer indebtedness, incomplete projects and falling buyer confidence. A Reuters poll forecasts house prices to fall 8.5% in 2024 and 3.9% in 2025 as the market tries to stabilise.
🎌 In relation with the Bank of Japan move, Japan’s minister of economic security, Sanae Takaichi, who is also a front-runner for the leadership position in the governing party, stated on Saturday that the ultra-low interest rates should be maintained by the central bank to help the weak economic recovery. When questioned about the Bank of Japan’s (BOJ) interest rate rises this year, she responded, “Frankly, it was too early,” during a press conference with the nine contenders. BOJ Governor Kazuo Ueda has indicated that the bank is prepared to hike rates even further if inflation remains at or around 2% in the upcoming years and wage growth continues to be strong, as the bank presently predicts. Most Reuters-surveyed analysts anticipate another rate rise from the BOJ this year, with over 75% predicting one in December. No respondents predicted that rates will rise the following week.
Market View:
📊 Equity markets have recovered their tone from last week’s close. The SP500 futures seem to be pausing at the 5600 level, timidly breaking above it, acting as resistance, as we indicated in the last report. Nasdaq 100, in spite of the advances, has not managed to pass the 19,500 point level and is currently retreating slightly. The dollar weakens, discounting the imminent rate cut that is expected, and the DXY returns to the 100 point zone, now trading at 100.70 points. EURUSD rises conveniently to 1.1120 fuelled by doubts on the continuity of the rate cut in Europe after Lagarde’s remarks on Friday.
🇪🇺 In Europe, the Dax 40 managed to break above the 18,600 resistance level, but upon reaching the 18,700 area it retreated and is now trading around 18,650 points.
🛢️ Crude oil prices are stable, with Brent crude at 71.75 $. Gold is super strong, now trading above $2,600, fuelled by a weaker dollar and rising tensions following Putin’s warnings at the end of last week. Bitcoin has been above $60,000 for the last two days but has fallen back to $58,650 in the last few hours.
Geopolitics:
🔫 In US, the Secret Service has captured an alleged assassin who attempted to shoot Donald Trump, but did not fire. The Secret Service foiled an apparent assassination attempt on Donald Trump while he was golfing in Florida, firing on a gunman in nearby bushes. The suspect, identified as Ryan Wesley Routh, 58, of Hawaii, left an AK-47-style rifle and fled the scene, but was later arrested. Routh’s social media accounts suggest he supported Ukraine against Russia and appeared to try recruiting soldiers for Ukraine. The conservative press is accusing the mainstream media of polarising society through its continued attacks on Trump, with journalists such as the BBC’s David Aaronovitch joking that Trump’ s assassination would be justified, as Trump was seen as a national threat. Israeli historian and member of the World Economic Forum, Yuval Hanari, said that a Trump re-election would be a deadly blow to the global order. Democratic Congressman Dan Goldman said on MSNBC in November 2023 that ‘Trump cannot return to the White House, he is a danger to our democracy and has to be eliminated’.
🇮🇱 Israel’s foreign minister again accused the EU’s Josep Borrell of “anti-Semitism” over his criticism of an Israeli strike killing UN staff in Gaza. The Israeli air strike flattened a UN-run school being used as a shelter in Gaza, killing at least 18 including UN employees. Borrell said the strike showed a “disregard of international humanitarian law” principles. Katz said Borrell leads an “anti-Semitic, hate-filled campaign” against Israel reminiscent of history’s worst anti-Semites. Over 220 UNRWA staff have been killed in the Israel-Hamas war, the first West Bank death in over a decade. UNRWA is in crisis since Israel accused employees of involvement in attacks but provided no evidence.
