Market Report.
📉 The European Central Bank cut interest rates yesterday in line with market expectations, keeping its guidance data-dependent without a set path. Lagarde said the downward trajectory is “pretty obvious” but avoided commitments as growth forecasts were trimmed and 2024-25 inflation projections edged up slightly. Traders scaled back bets on an October cut to 20% due to the unclear outlook and lingering inflation pressures like rising wages. As we have described in previous reports for the French and Japanese economies, in Europe risks tilting to the downside for growth but upside risks for inflation, creating a stagflationary environment. Remember that we have insisted that core inflation, the most important, remains at 2.8%. The ECB may feel pressure to match an expected series of Fed cuts to ease financial conditions and currency impacts. As we mentioned yesterday in the media, we believe that Fed rate cuts could at least partly neutralise ECB rate cuts, and thus enter a negative spiral for Europe.
📊 Today’s macro data from Europe shows two key points: France’s monthly inflation eases, coming in at 0.5% vs. 0.6% expected. Meanwhile, eurozone industrial production weakens less than expected, but remains in contraction, -0.3% month-on-month versus -0.6% expected but worsening from the previous period’s -0.1%.
⚠️ IMPORTANT: Next week we have back to back central bank moves which could make the market particularly volatile. Especially on Wednesday with the Fed rate decision. Thursday, with the Bank of England rate decision, and Friday, with the Bank of Japan rate decision. In addition, there will be market moving statements, as well as rate decisions from other countries – I have attached a calendar with all the details at the bottom of this report.
🇬🇧 In the UK, the BoE seems committed to reducing the balance sheet and normalising its finances. A Reuters poll sees no change to the Bank of England’s 5% interest rate next week, after a cut last month, as inflation data has been mixed. Markets price a 20% chance of a cut next week and a full 25bps reduction priced for November, seeing the BoE easing less than the Fed. The BoE governor says QT is needed to preserve the ability to stimulate via QE if needed in future. Critics say QT is bringing forward losses for the BoE from past bond purchases and imposing costs on taxpayers. The new finance minister will likely alter fiscal rules to exclude the QT impact on the budget.
🇯🇵 Japan: Reuters also expect no rate hike at the BOJ’s Sept 19-20 meeting. However, 54% still foresee a rate increase by end-2022, slightly down from last month. But disruptions to markets from global downturns or faster Fed cuts could complicate the BOJ’s plans. The central bank surprised in July by raising rates from -0.10% to 0.25% after abandoning negative rates in March. Japan’s economy grew slightly slower than initially reported in Q2, clouding the outlook and rate hike path.
💰 Spot gold hit $2,560.13 an ounce on Thursday, the highest ever. Daily average volume was 99,527 contracts through September 11, surpassing all of 2020 when it hit a record 86,101 lots. Gold has surged about 25% this year supported by Fed easing signals, central bank buying, and geopolitical risks boosting haven demand. Retail investor interest is also picking up amid the rally and weak US labor data pointing to downside economic risks.
Market View:
📈 The European Central Bank’s rate cut announcement did not have a dramatic impact on the markets, possibly because the reason was already highly anticipated. Nevertheless, markets regain their positive tone.
📈 Mini S&P 500 futures moved higher, breaking above the 5,550 level and now facing new resistance at 5,615. The Nasdaq 100 also rallies, climbing above 19,400 points; we forecast the next resistance at 19,600 points.
💱 The dollar DXY has weakened sharply again, falling back to the 100 point area, above which it is trying to hold as support. The EURUSD has rallied sharply and is approaching 1.11. The reasons behind this move could be yesterday’s disappointment with Christine Lagarde’s lack of clarity on the next ECB rate cuts, which would have made the euro more expensive.
📉 The European market responded positively, but the DAX 40 is unable to break above the 18,600 level, which it is facing this session. The response of the Eurostoxx 50 has also been disappointing for participants, and barely advanced a few points above 4,800.
💹 Bitcoin is showing patterns of strength as it approaches 59,000. As mentioned above, gold’s break of all-time highs has been spectacular, with a new high around 2,600. Crude oil is only slightly higher, with Brent crude oil hovering in the $72.50 area.
Geopolitics:
🌍 Putin warned that allowing long-range strikes on Russia from Ukraine would mean direct conflict with NATO countries. He argued satellite targeting and programming of such strikes would require NATO personnel, making them direct participants in the war. Russia would have to take “appropriate decisions” in response to new threats, though Putin did not specify what measures.
🤝 Chinese and Russian defence officials criticised the US at a military forum in Beijing, with China pitching cooperation to developing nations. China’s defence minister called for abandoning a “zero-sum mindset” and not interfering in other countries, in a veiled critique of the US. Both backed a “just, multipolar world order” and opposed actions that could lead to direct conflict between nuclear powers. The US sent a lower-level delegation and held talks with China on the sidelines, signalling commitment to engagement.
⚠️ Ukraine accused Russia of using strategic bombers to strike a civilian grain vessel with missiles near Romania. The vessel was carrying grain to Egypt from Ukraine after leaving its territorial waters, according to President Zelenskyy. The strike threatens global food security and civilian shipping in the Black Sea region.
📅 Central Bankers Calendar Next Week:
Wednesday, September 18, 2024
08:30 IDR: Interest Rate Decision – 6.25%
19:00 USD: Fed Interest Rate Decision – 5.25%
19:30 USD: FOMC Press Conference
22:00 BRL: Interest Rate Decision – 10.50%
Thursday, September 19, 2024
12:00 GBP: BoE Interest Rate Decision (Sep) – 5.00%
12:00 GBP: BoE MPC Meeting Minutes
14:00 ZAR: Interest Rate Decision (Sep) – 8.00%
Friday, September 20, 2024
02:00 CNY: PBoC Loan Prime Rate (Sep) – 3.85%
02:15 CNY: PBoC Loan Prime Rate – 3.35%
03:30 JPY: BoJ Monetary Policy Statement
04:00 JPY: BoJ Interest Rate Decision – 0.25%
10:30 GBP: BoE MPC Member Mann Speaks
16:00 EUR: ECB President Lagarde Speaks
19:00 USD: FOMC Member Harker Speaks
