Tag: Federal Reserve

The Rate Cut Dance Begins; But You’re Not Invited!

To the surprise of no one the Federal Reserve cut its benchmark interest rate on Wednesday as signalled in my earlier post, and they went for the more aggressive half percentage point. The Federal Open Market Committee voted 11 to 1 to lower the federal funds rate to a range of 4.75% to 5%, after holding it for more than a year at its highest level in two decades. It was the Fed’s first rate cut in more than four years. Governor Michelle Bowman dissented in favor of a smaller, quarter-point cut — the first dissent by a governor since 2005 and the first dissent from any member of the FOMC since 2022.

The impact of the first cut from the FED echoed through global markets. But remember that the FED shift lower to 4.75% to 5% probably won’t impact the Bank of England’s latest rate decision, which will most likely be a hold, following last month’s cuts.

So far as Australia is concerned, the new FED rates are still significantly higher than the RBA’s weak 4.35%, and inflation in Australia is running much hotter as a result. The data flows in Australia also suggests no reason for the RBA to cut anytime soon, as for example the the unemployment rate was steady at 4.2 per cent in August, according to seasonally adjusted data released today by the Australian Bureau of Statistics.

And another data point from the ABS showed that Australia’s population grew by 2.3 per cent to 27.1 million people in March 2024. Our population at 31 March 2024 was 27.1 million people, having grown by 615,300 people over the previous year. Net overseas migration drove 83 per cent of this population growth, while births and deaths, known as natural increase, made up the other 17 per cent.

I don’t thing the FED’s move based on inflation at 2.2% there has much relevance in the short term in Australia. Were it not for the massive flood of migrants and the job creation programmes funded by state and federal government, we would probably be in a recession, and rate cuts would already be in play. But the brutal truth is Government policy is keeping rates higher for longer.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

The Rate Cut Dance Begins; But You’re Not Invited!

To the surprise of no one the Federal Reserve cut its benchmark interest rate on Wednesday as signalled in my earlier post, and they went for the more aggressive half percentage point. The Federal Open Market Committee voted 11 to 1 to lower the federal funds rate to a range of 4.75% to 5%, after holding it for more than a year at its highest level in two decades. It was the Fed’s first rate cut in more than four years. Governor Michelle Bowman dissented in favor of a smaller, quarter-point cut — the first dissent by a governor since 2005 and the first dissent from any member of the FOMC since 2022.

The impact of the first cut from the FED echoed through global markets. But remember that the FED shift lower to 4.75% to 5% probably won’t impact the Bank of England’s latest rate decision, which will most likely be a hold, following last month’s cuts.

So far as Australia is concerned, the new FED rates are still significantly higher than the RBA’s weak 4.35%, and inflation in Australia is running much hotter as a result. The data flows in Australia also suggests no reason for the RBA to cut anytime soon, as for example the the unemployment rate was steady at 4.2 per cent in August, according to seasonally adjusted data released today by the Australian Bureau of Statistics.

And another data point from the ABS showed that Australia’s population grew by 2.3 per cent to 27.1 million people in March 2024. Our population at 31 March 2024 was 27.1 million people, having grown by 615,300 people over the previous year. Net overseas migration drove 83 per cent of this population growth, while births and deaths, known as natural increase, made up the other 17 per cent.

I don’t thing the FED’s move based on inflation at 2.2% there has much relevance in the short term in Australia. Were it not for the massive flood of migrants and the job creation programmes funded by state and federal government, we would probably be in a recession, and rate cuts would already be in play. But the brutal truth is Government policy is keeping rates higher for longer.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Will The FED Stoke Inflation And Drive An Even Greater Wedge Between Rich And Poor?

This is our weekly market update, where we start in the US, cross to Europe and Asia and end in Australia, whilst covering commodities and crypto on the way. I do this to keep track of what is going on in today’s complex markets, so expect lots of data not superficial waffle. You have been warned. If that’s not for you, then look elsewhere for more cute cats!

We are, it seems, at the pointy end of the FED’s decision to cut rates when they meet next week as US shares rallied on renewed expectations that they could opt for a half percentage point cut. Futures have it as 50/50 for a half or quarter point cut, but everyone is now expecting the first of several ahead.

While the renewed hopes for a bigger cut were boosting large cap indexes on Friday the optimism seemed most evident in the Russell 2000 small cap index (RUT), which rose 2.5% on the day and 4.4% for the week. Smaller companies are more sensitive to rate changes as they depend more on borrowed money and floating rate loans.

The Dow Jones Industrial Average rose 0.72%, to 41,393.78, the S&P 500 gained 0.54%, to 5,626.02 and is just 1% shy of its July record while the Nasdaq Composite gained 0.65%, to 17,681.55. The potential for a large rate cut helped drive utilities, materials and industrials higher. Twenty-four of the Dow’s 30 components were higher; Techs mostly lagged.

All three major U.S. benchmark indexes ended close to roughly two-week highs and logged solid weekly gains. For the week the S&P 500 rose 4.02% and the Nasdaq climbed 5.95%, with both marking their biggest weekly percentage gains since early November. The Dow added 2.60% for the week.

European stocks rounded off the week on a positive note, supported by technology, real estate and mining shares, while investors shifted their focus to the U.S. Federal Reserve ahead of a long-awaited monetary easing at its meeting next week. Technology and real estate gave the market its biggest boost, followed by miners that advanced 1.3%, as copper prices hit a two-week high on buying ahead of a Chinese holiday and amid stimulus hopes.

Australian shares extended gains on Friday, but stopped short of a closing high as a drag in banks offset a strong push in mining stocks as commodity prices rose. The benchmark S&P/ASX 200 ended up 0.3 per cent to 8099.9, bringing weekly gains to 1.1 per cent.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

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Digital Finance Analytics (DFA) Blog
Digital Finance Analytics (DFA) Blog
Will The FED Stoke Inflation And Drive An Even Greater Wedge Between Rich And Poor?
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Will The FED Stoke Inflation And Drive An Even Greater Wedge Between Rich And Poor?

This is our weekly market update, where we start in the US, cross to Europe and Asia and end in Australia, whilst covering commodities and crypto on the way. I do this to keep track of what is going on in today’s complex markets, so expect lots of data not superficial waffle. You have been warned. If that’s not for you, then look elsewhere for more cute cats!

We are, it seems, at the pointy end of the FED’s decision to cut rates when they meet next week as US shares rallied on renewed expectations that they could opt for a half percentage point cut. Futures have it as 50/50 for a half or quarter point cut, but everyone is now expecting the first of several ahead.

While the renewed hopes for a bigger cut were boosting large cap indexes on Friday the optimism seemed most evident in the Russell 2000 small cap index (RUT), which rose 2.5% on the day and 4.4% for the week. Smaller companies are more sensitive to rate changes as they depend more on borrowed money and floating rate loans.

The Dow Jones Industrial Average rose 0.72%, to 41,393.78, the S&P 500 gained 0.54%, to 5,626.02 and is just 1% shy of its July record while the Nasdaq Composite gained 0.65%, to 17,681.55. The potential for a large rate cut helped drive utilities, materials and industrials higher. Twenty-four of the Dow’s 30 components were higher; Techs mostly lagged.

All three major U.S. benchmark indexes ended close to roughly two-week highs and logged solid weekly gains. For the week the S&P 500 rose 4.02% and the Nasdaq climbed 5.95%, with both marking their biggest weekly percentage gains since early November. The Dow added 2.60% for the week.

European stocks rounded off the week on a positive note, supported by technology, real estate and mining shares, while investors shifted their focus to the U.S. Federal Reserve ahead of a long-awaited monetary easing at its meeting next week. Technology and real estate gave the market its biggest boost, followed by miners that advanced 1.3%, as copper prices hit a two-week high on buying ahead of a Chinese holiday and amid stimulus hopes.

Australian shares extended gains on Friday, but stopped short of a closing high as a drag in banks offset a strong push in mining stocks as commodity prices rose. The benchmark S&P/ASX 200 ended up 0.3 per cent to 8099.9, bringing weekly gains to 1.1 per cent.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Latest CPI Data Says Services Inflation Is Still Riling!

On Wednesday the BLS released the latest US inflation data and top line, it appears the post-pandemic spike in U.S. inflation eased further last month as year-over-year price increases reached a three-year low. However, while the spike in goods, food and energy prices is over, services inflation remains uncomfortably high.

Core prices rose 3.2% in August from a year ago, the same as in July. And on a month-to-month basis, core prices rose 0.3%, a slight pickup from July’s 0.2% increase. Core of course is closely watched by economists as it typically provides a better read of future inflation trends.

But it is important to look at the elements which flowed into the headline cpi. For example, a key reason for last month’s drop in overall inflation was the third drop in gas prices in the past four months: Average gas prices fell 0.6% from July to August and are down 10.6% from a year ago.

Importantly, the tick-up in core inflation from July to August reflected an acceleration in housing costs and some spikes in the prices of air fares and hotel rooms. Shelter highlights another serious issue — the high level of “sticky” inflation for services and commodities whose prices take a long time to change. Including shelter, this measure, calculated by the Atlanta Fed, remains above 4%. If shelter is ignored, it’s below 3%, making it far easier for the Fed to start easing!

But the big question now is whether we are in a pre-recession period in the US. Markets continue to expect big cuts ahead and bond yields are responding accordingly.

For Australia, where inflation is higher, and rates are unlikely to change this year from the current 4.35%, the economy will be buffeted by weaker demand from China, and rate cuts in other places. Which once again highlights the dilemma we are in thanks to poor monetary and fiscal policy in recent times. And again, the neutral rate does appear to be higher now, so we should not expect rates to miraculously slide towards zero. We are now in a higher rate for ever environment.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.a

Rate Cuts Incoming: But Be Careful What You Wish For!

This is our weekly market update where we start in the US, cross to Europe and Asia and end in Australia, while covering commodities and crypto on the way.

Weird though it seems, a short speech given by an elderly gentleman in a valley and wilderness recreation area in western Wyoming had the markets on edge all week, following the fall then rise of markets this past few weeks. The mini-stroke that roiled global markets a few weeks ago is a fading memory, with the market resuming its steady march higher; the S&P 500 is now up 19 per cent for the year, and almost 37 per cent from last November, when the current bull market rally really got going.

Of course we are talking about FED Chair Jerome Powell, and his speech at Jackson Hole as part of the Central Bankers’ summer love-in on Friday. Just four minutes and 50 seconds into his speech, he gave the market what it wanted to hear.

“The time has come for policy to adjust,” the Federal Reserve chairman said in his long-awaited speech at the Fed’s annual Jackson Hole symposium.

“The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”

As always, the markets heard what they wanted to hear, and acted accordingly, Wall Street leapt higher and bond yields fell.

At the close in NYSE, the Dow Jones Industrial Average added 1.14% to hit a new 1-month high, while the S&P 500 index climbed 1.15%, and the NASDAQ Composite index climbed 1.45%.

But while the rate cut signal is now clear, should markets rally? You may want to reflect on this. In the first 200 days following the first rate cut, equities typically decline by 23 per cent on average. The start of the rate cycle signals the beginning of a deterioration in growth and profits.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Digital Finance Analytics (DFA) Blog
Digital Finance Analytics (DFA) Blog
Rate Cuts Incoming: But Be Careful What You Wish For!
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Rate Cuts Incoming: But Be Careful What You Wish For!

This is our weekly market update where we start in the US, cross to Europe and Asia and end in Australia, while covering commodities and crypto on the way.

Weird though it seems, a short speech given by an elderly gentleman in a valley and wilderness recreation area in western Wyoming had the markets on edge all week, following the fall then rise of markets this past few weeks. The mini-stroke that roiled global markets a few weeks ago is a fading memory, with the market resuming its steady march higher; the S&P 500 is now up 19 per cent for the year, and almost 37 per cent from last November, when the current bull market rally really got going.

Of course we are talking about FED Chair Jerome Powell, and his speech at Jackson Hole as part of the Central Bankers’ summer love-in on Friday. Just four minutes and 50 seconds into his speech, he gave the market what it wanted to hear.

“The time has come for policy to adjust,” the Federal Reserve chairman said in his long-awaited speech at the Fed’s annual Jackson Hole symposium.

“The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”

As always, the markets heard what they wanted to hear, and acted accordingly, Wall Street leapt higher and bond yields fell.

At the close in NYSE, the Dow Jones Industrial Average added 1.14% to hit a new 1-month high, while the S&P 500 index climbed 1.15%, and the NASDAQ Composite index climbed 1.45%.

But while the rate cut signal is now clear, should markets rally? You may want to reflect on this. In the first 200 days following the first rate cut, equities typically decline by 23 per cent on average. The start of the rate cycle signals the beginning of a deterioration in growth and profits.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

The FED Does Nothing (Again…!)

The Federal Open Market Committee decided to leave the cash rate unchanged yesterday, and it’s weird that the biggest financial news from Wednesday is that they did nothing at all, and did not committing to doing anything in future, despite the call from some to cut rates in a pre-emptive intervention to head off a recession.

As always traders parsed every nook and cranny of the FOMC statement, while billions of dollars changed hands.

Powell said decisions on monetary policy are a “very difficult judgment call,” and he laid out scenarios for everything from cutting several times this year to no cuts at all. If inflation moves down in line with expectations, growth remains reasonably strong, and the labor market remains consistent with its current condition, a rate cut could be on the table in September, he says.

Eyes now turn to the Bank of England, who may or may not cut rates in the UK today. With inflation close to 2% and an expectation of an ECB like rise in inflation ahead, it’s a line ball call.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Digital Finance Analytics (DFA) Blog
Digital Finance Analytics (DFA) Blog
The FED Does Nothing (Again...!)
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The FED Does Nothing (Again…!)

The Federal Open Market Committee decided to leave the cash rate unchanged yesterday, and it’s weird that the biggest financial news from Wednesday is that they did nothing at all, and did not committing to doing anything in future, despite the call from some to cut rates in a pre-emptive intervention to head off a recession.

As always traders parsed every nook and cranny of the FOMC statement, while billions of dollars changed hands.

Powell said decisions on monetary policy are a “very difficult judgment call,” and he laid out scenarios for everything from cutting several times this year to no cuts at all. If inflation moves down in line with expectations, growth remains reasonably strong, and the labor market remains consistent with its current condition, a rate cut could be on the table in September, he says.

Eyes now turn to the Bank of England, who may or may not cut rates in the UK today. With inflation close to 2% and an expectation of an ECB like rise in inflation ahead, it’s a line ball call.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

US Markets Swing Towards Rate Cuts As Inflation Eases…

Here we go again, as inflation, which had been falling last year, but rising in the first part of 2024, now appears to be easing again, so markets who at the start of the year saw 6 rate cuts, then trimmed them to none, and possibly a rise, are now again betting on multiple cuts later this year. Talk about fickle.

Actually, US inflation did cool broadly in June to the slowest pace since 2021 thanks to a long-awaited slowdown in housing costs as the so-called core consumer price index — which excludes food and energy costs — climbed just 0.1% from May, the smallest advance in three years the Bureau of Labor Statistics reported. Core CPI climbed 3.3% over the last 12 months after rising 3.4% in May.

Its too soon to bank big rate cuts in the US, as the data remains mixed, but the market is like a set of lemmings swinging one way and the next, in trying to out guess the FED. But certainly, it’s more likely now that the FED will cut well before the RBA where inflation is still on the up.

The RBA needs to tackle seemingly much higher and more intractable inflation while maintaining a far less restrictive policy given its 4.35 per cent cash rate, a rate lower than many peers. This is a policy error which will inflict lasing damage on the local economy.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Today’s post is brought to you by Ribbon Property Consultants.

Digital Finance Analytics (DFA) Blog
Digital Finance Analytics (DFA) Blog
US Markets Swing Towards Rate Cuts As Inflation Eases...
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