The Fed interest rate decision is the main event today. Although the fact they will cut rates is in no doubt, markets are however divided on how big the cut may be. The case for a quarter-point cut is straight forward, inflation has sunk back towards the Fed’s target, the jobs market is cooling, so perhaps it is time to ease off the brakes a little. Those betting on a 50bps cut, point out that Fed chief Jay Powell opened the door to a debate about the size of rate cuts back in the summer, when he talked about the “pace” of easing at the Jackson Hole symposium, while more recently others, such as New York Fed’s former president Bill Dudley, have laid out the case for a half-point cut. Rates traders have taken note and shifted hard from a nailed-on expectation for a small cut, to a decent chance of a large one, with investors now seeing better-than-even odds of a half-point adjustment.
In markets yesterday, US stocks were fairly directionless after the S&P 500 hit an intraday record in early trading, with energy the best performing sector. The Nasdaq was down -0.4%, while overnight in Asian markets equities have also been mixed, the S&P/ASX 200 is flat, having hit a record 8,151.4 points before paring gains. Japan’s Topix is up 0.2%, while mainland China’s CSI 300 is down added 0.9%. Cryptocurrencies initially rose in Asian trading, as expectations of a rate reduction boosted speculative assets, though have since given up gains with Bitcoin rising 0.2% to $60,234.69 and Ether falling 1.1% to $2,319.39. The Yen has rebounded from losses on Tuesday as traders await the BOJ interest rate decision which will come later in the week, Governor Kazuo Ueda and colleagues are expected to keep their benchmark unchanged on Friday.
UK inflation has come in as expected this morning at 2.2%, this should leave the door open for the BoE to cut rates further this year. The figures come amid mounting signs that the economy is losing momentum. Having stagnated in July for a second consecutive month, held back by declines in manufacturing and construction. Other data today includes Eurozone CPI at 10am and US Building permits at 1:30pm.
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