This is our weekly market update, designed to help me digest what is happening, starting in the US, probably the most consequential market in the world, then we move to Europe, Asia and end in Australia and also cover commodities and crypto on the way.
On Friday shares on Wall Street were mixed in a narrow range as investors continued to assess the outlook for US interest rates. Why 50 basis points, not 25, and was this a minor course correction, aimed at bringing a soft economic landing, or a sign the FED had left things too long and was trying to head off a lurking recession risk? And was there a hint of political here ahead of the US election? It’s really not clear. And as for that mythical R star – the level at which rate neither detract from, or add to growth, remains like the quest for the holy grail.
One top Federal Reserve policymaker signalled a willingness to cut rates at a fast pace. Federal Reserve governor Christopher Waller told CNBC that “inflation is running softer than I thought”. He’s now estimating that the Fed’s favoured gauge of inflation — the personal consumption expenditures price index — has risen over the last three months at an annualised rate of less than 1.8 per cent, which is below the Fed’s target of 2 per cent.
But separately, Federal Reserve governor Michelle Bowman said she was concerned this week’s 50-basis-point rate cut was “premature”, countering expectations of another similar move anytime soon. “I believe that moving at a measured pace toward a more neutral policy stance will ensure further progress in bringing inflation down to our 2 per cent target.” Bowman dissented at this week’s meeting, the sole policymaker to do so, voting for a quarter of a percentage point reduction instead.
We know the FED will continue to be data dependent and next week’s US data highlight will arrive on Friday with August’s PCE report.
Gold’s reaction to the most-dovish Fed decision in years proved lackluster. Futures were last at 2647.20, up 1.39% across the week. Plenty of traders thought gold would surge after an outsized rate cut birthing a new cutting cycle. And with top Fed officials projecting many more cuts, it is going to be big. Gold did rally initially on that revelation, but quickly reversed into a larger intraday loss. Fed rate cuts are bullish for gold, but speculators’ gold-futures positioning is overextended.
Australian shares scaled another record high on Friday, tracking a global wave of optimism that the US Federal Reserve will deliver a much-hoped-for soft landing for the world’s largest economy. The S&P/ASX 200 Index added 0.2 per cent to 8209.5, the highest closing level in its history. It climbed to an intraday peak of 8246.2 – setting a record for the sixth straight session. On the week, it gained 1.3 per cent.
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