North American Morning Briefing: Investors Primed for Fed Cut But Some Uncertainty Persists

OPENING CALL

Stock futures struggled for direction Monday despite a Federal Reserve interest-rate cut this week looking all but certain.

How stocks might react remains very much up in the air.

History offers some guidance : the reason the Fed is cutting interest rates matters far more for markets than the simple fact that borrowing costs are coming down.

"Whether this cutting cycle will ultimately be a 'growth scare' or a 'recessionary' episode is the major market question," Goldman Sachs said.

Investors are also considering the U.S. electoral race.

Shares in Trump Media & Technology rose premarket after the Republican candidate was the target of a second apparent assassination attempt Sunday.

Bond prices rose, pushing the 2-year Treasury yield to its lowest since September 2022.

Premarket Movers

Charles Schwab is set to report monthly activity data for August before the bell Monday.

Intel qualified for up to $3.5 billion in federal grants to make advanced chips for the Pentagon, Bloomberg News reported late Friday. Shares rose 4%.

Watch For:

The Empire State manufacturing survey; Canada Manufacturing Survey for July; Canada new motor vehicle sales for July

Today's Headlines/Must Reads:

- Why Washington and Big Oil Are Investing Billions in Ammonia

- The Power Grid Has Withstood the Heat, but Electric Supplies Are Tight

- Don't Fear the Unemployment Rate

- Fed Enters Tricky Terrain: Rate Cuts in a Decent Economy

- After Layoffs, Tesla's Supercharger Expansion Slows

MARKET WRAPS

Forex:

The dollar edged down on financial markets pricing in a higher chance of a 50bps cut from the Fed, and is likely to track lower over the week, but if dovish bets are disappointed it could bounce, CBA said.

The euro could extend gains against the dollar as the market bets on more aggressive Fed rate cuts compared with the ECB, ING said.

"The continuing drop in short-dated U.S. rates means that at 85 basis points, the two-year EUR-USD swap differential is at its narrowest level of the year."

This differential could narrow further if markets price out a rate cut at the ECB's October meeting, with potential for ECB's Philip Lane to push back against such a move in a speech at 08:00 EST it said.

Unicredit Research said a 50 basis-point cut could lift EUR/USD above 1.12 and weaken USD/JPY further below 140.

"A 25bp rate cut by the Fed, which we expect, might prevent the dollar from losing ground but will probably not be enough to spark a strong recovery of the U.S. unit across the board."

Liquidity was thin, with markets in Japan and China closed for a public holiday.

U.S.-Japan monetary policy divergence continues to be a key driver for the dollar against the yen , Westpac said.

Sterling has tended to weaken after recent BOE meetings but this time any depreciation should be limited, MUFG said ahead of its interest-rate decision on Thursday.

Bonds:

Treasurys could outperform their European peers in the fourth quarter, according to BNP Paribas Markets 360's forecasts.

It expects yields of developed-market fixed income assets to decline, but more so in U.S. than in Europe.

Japanese government bonds are an outlier and aren't favored, with yields likely to rise, it added.

"Given our view of a limited potential fall in U.S. 10-year yields after a Fed cut, we think 10-year Japanese government bond yields could rise after the Fed moves."

Energy:

Oil traded higher on Fed rate-cut expectations, despite the latest Chinese data pointing to continued weakness in domestic demand.

However, the latest positioning data shows speculators' short positions in Brent outnumbered long bets by 12,680 lots--meaning there are now more investors expecting oil prices to fall than those expecting them to rise--according to ING.

Data over the weekend also indicated China boosted crude-oil stockpiles massively in August amid weak demand and softer refining, ING said.

Phillip Nova said despite production halts in the Gulf of Mexico and disruptions in Libyan supplies adding to supply-side risks, markets reflecting traders' cautiousness amid worries of an economic slowdown, bringing the Fed decision into focus.

However, whether prices are on a downward trend is left to be seen it added, noting that OPEC and EIA both revised their demand outlook downwards, as deteriorating demand from China weighs.

Metals:

ANZ raised its short-term gold forecast to $2,700 and year-ending 2025 forecast to $2,900 citing the U.S. rate-easing cycle likely to start this month as supporting prices.

The intensity of the price rise will depend on the pace of Fed rate cuts in the short term, it said, adding that falling real interest rates and a weakening dollar will likely strengthen the inverse relationship they have with gold during the upcoming easing cycle, while gold buying by central banks remains strong.

Angel One said gold is expected to climb on rising bets for a larger Fed rate cut and ongoing geopolitical risks.

It sees support for spot prices at $2,510-$2,560 and resistance at $2,645-$2,688.

Rare Earths

Neodymium and praseodymium, or NdPr prices are moving out of a trough, Ord Minnett said, adding that it reckons the sustainable low price is now $60/kg and it should average that level in 4Q on tight supply.

"China cannot sustain ultra-low rare earth oxide prices indefinitely."

TODAY'S TOP HEADLINES

Boeing Machinist Strike Adds Cash Crunch to New CEO's Rescue Mission

A tough job just got much tougher for Boeing's new CEO.

When the jet maker's largest union went on strike Friday, the walkout compounded the list of problems facing Kelly Ortberg, who took Boeing's top job five weeks ago. Among them: rapid cash burn, a struggling supply base and a manufacturing quality crisis.

Nippon Steel Finds Unlikely Ally in Pittsburgh Workers

WEST MIFFLIN, Pa.-Former President Donald Trump and Vice President Kamala Harris have found agreement on one issue: opposing the $14.1 billion sale of U.S. Steel, one of America's most storied corporations, to Nippon Steel of Japan.

But outside Pittsburgh, in Monongahela River valley towns where steel is still made, some workers and officials say the rhetoric is disconnected from what is happening on the ground.

World's Biggest Hedge Fund Sells Apple, Eli Lilly Stock, and Buys Microsoft, Moderna

The largest hedge fund in the world by assets made major changes in some of its biggest investments.

In the second quarter, Bridgewater Associates slashed its stake in Apple stock by 75%, sold more than half of its Eli Lilly shares, nearly doubled an investment in Microsoft stock, and initiated a position in vaccine maker Moderna in the second quarter. Bridgewater disclosed the trades, among others, in a form it filed with the Securities and Exchange Commission.

Why Europe Is Embracing the New American Growth Model

The European Union's economic planners might want to shout "U.S.A., U.S.A.!" Ironically, though, emulating America today would involve more state intervention.

The bloc's politics were shaken last week after Mario Draghi, the former European Central Bank president credited with saving the eurozone in 2012, published his long-awaited report on how to stop an economic stagnation that has been worsened by the competition posed by Chinese exports and the end of cheap Russian energy.

Interest Rates Are Too High. The Fed Should Cut by a Half Point.

The Federal Reserve's interest-rate decision this week looks more difficult than it should be. The real question isn't how much to cut, but where rates ought to be. The answer is much lower. That argues for a half-point cut.

The case for a bigger cut starts by examining why the Fed's short-term rate target is now 5.25% to 5.5%, the highest since 2001. The Fed pushed it there last summer because underlying inflation was well above 3% and, with the labor market overheated, the Fed was afraid it would get stuck there. It was willing to cause a recession to prevent that.

Wall Street Turns Skittish on Eve of Rate Cuts

The Federal Reserve is poised to cut interest rates for the first time since 2020. The size of the first cut-and where rates will be three months from now-is anyone's guess.

Traders are assigning a nearly dead-even chance that the central bank will unveil a quarter-percentage-point or half-point cut Wednesday at the conclusion of its meeting.

Write to clare.kinloch@wsj.com

TODAY IN CANADA

Earnings:

Nothing major scheduled.

Economic Indicators (ET):

0830 Jul New motor vehicle sales

0830 Jul Monthly Survey of Manufacturing

0830 Aug Model-based Principal Field Crop Estimates

Stocks to Watch:

Air Canada , Pilots' Union Avert Strike With Four-Year Deal

Capstone Copper Price Target Raised 2% to A$12.70/Share by Macquarie

Canaccord acquires team of CIBC wealth advisers with $1.4-billion of client assets

Patriot Battery Metals Price Target Cut 22% to A$0.70/Share by Macquarie

Expected Major Events for Monday

08:00/ITA: Aug CPI

09:00/ITA: Jul Foreign Trade EU

12:30/CAN: Aug Model-based Principal Field Crop Estimates

12:30/CAN: Jul Monthly Survey of Manufacturing

12:30/US: Sep Empire State Manufacturing Survey

12:30/CAN: Jul New motor vehicle sales

All times in GMT. Powered by Kantar Media and Dow Jones.

Expected Earnings for Monday

AstroNova Inc (ALOT) is expected to report for 2Q.

Coda Octopus Group Inc (CODA) is expected to report for 3Q.

Ennis Inc (EBF) is expected to report for 2Q.

Ocean Power Technologies Inc (OPTT) is expected to report for 1Q.

RF Industries (RFIL) is expected to report $-0.01 for 3Q.

Value Line Inc (VALU) is expected to report for 1Q.

Vince Holding Corp (VNCE) is expected to report for 2Q.

Powered by Kantar Media and Dow Jones.

ANALYST RATINGS ACTIONS

Alexandria Real Estate Cut to Neutral From Buy by Citigroup

Correction to Eli Lilly Rating

CubeSmart Cut to Neutral From Buy by UBS

(MORE TO FOLLOW) Dow Jones Newswires

September 16, 2024 06:20 ET (10:20 GMT)

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