EMEA Morning Briefing: Investors Buckle Up for Imminent Fed Rate Cut

MARKET WRAPS

Watch For:

CPI data for EU, U.K.; PPI data for U.K.; No major corporate events expected

Opening Call:

European stock futures were lower ahead of the Federal Reserve's rate cut decision. Asian stock benchmarks were broadly higher; the dollar weakened and Treasury yields were mixed; oil futures declined while gold gained.

Equities:

Stock futures in Europe declined early Wednesday as investors wait to see whether the Fed cuts interest rates by a quarter-point or a half-point.

U.S. stocks have rallied to trade around record highs ahead of the Fed meeting, with some investors giddy at the prospect of lower rates and a still-growing economy. All eyes will be on Fed Chair Jerome Powell's commentary on the economy during his news conference.

"The key risk will be convincing market participants that they are not behind the curve, but rather balancing risks appropriately," said Josh Hirt, U.S. senior economist at Vanguard Group.

"Importantly, this rate cut is just the beginning," said Greg McBride, chief financial analyst at Bankrate. "By itself, one rate cut isn't a panacea for borrowers grappling with high financing costs and has a minimal impact on the overall household budget. What will be more significant is the cumulative effect of a series of interest rate cuts over time."

Also on tap today are eurozone and U.K. inflation figures ahead of the Bank of England rate decision on Thursday.

Forex:

U.S. dollar weakened ahead of the FOMC decision due out later today. Market expectations for a 50 bps rate cut by the Fed have stabilized around a 60%-70% range, Maybank analysts said.

However, the FOMC would likely want to avoid sending a wrong signal to markets with a large rate cut, partly because this could cause panic, the analysts said.

Bonds:

Treasury yields were mixed ahead of the Fed rate decision.

"Although current market pricing sees the Federal Reserve announcing a 50-basis-point rate cut this week, we think a 25-basis-point move is marginally more likely," said Neil Shearing, group chief economist at Capital Economics.

"There is a case for the Fed beginning its easing cycle with a bigger move, but recent history shows how 50-basis-point cuts are often associated with far more challenging economic environments than today's, " Shearing said.

Energy:

Oil prices were lower in Asia. Prices got a lift Tuesday after pagers carried by Hezbollah operatives in Lebanon exploded around the same time in an apparent attack - raising fears of a broader Middle East conflict that could threaten crude flows from the region.

Prices were fluctuating early Wednesday as traders assess supply and demand dynamics, said Li Xing Gan, financial markets strategist at Exness.

On the supply side, oil disruptions could offer short-term relief from the recent fall in oil prices, the strategist said. However, sluggish demand could overshadow these supply worries as market participants are still cautious amid persistent weakness in China, the strategist added.

Metals:

Gold edged higher. Prices of the precious metal remain near record highs, aided by dollar weakness and growing expectations of a large rate cut by the Fed, said Joseph Dahrieh, managing principal at Tickmill.

Recent U.S. labor market data indicating a slowdown has increased the probability of a 50 bps rate cut, Dahrieh said.

Also, rising political uncertainty in the U.S. ahead of the November election was boosting gold's appeal as a safe-haven asset, Dahrieh added.

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Copper edged lower in Asian trade. Investors await the U.S. Fed rate cut decision as bets on a 50 bps cut rise. Markets were on the edge while also waiting for the Chinese government to respond to the weak economic data released recently, the ANZ Research team said.

There's market speculation that Chinese officials could announce more economic support measures soon, they added.

TODAY'S TOP HEADLINES

Fed Prepares to Lower Rates, With Size of First Cut in Doubt

The Federal Reserve is set to cut borrowing costs at its two-day meeting that ends Wednesday. The goal: preserve a solid job market now that price pressures have cooled.

The decision over whether to cut the Fed's benchmark interest rate, currently at a two-decade high between 5.25% and 5.5%, by either a larger half percentage point or by a traditional quarter point will come down to how Chair Jerome Powell leads his colleagues through a finely balanced set of considerations.

Gold is giving you a once-in-a-generation buying opportunity on its way to 4,400

Now that gold prices GC00 are reaching new highs, is there still a buying opportunity - or is this a bull trap?

Let's begin with the reasons for caution. Conventional drivers of gold prices have lagged the yellow metal and are forming negative divergences that warn of excessive frothiness. Should investors be worried about these technical warnings of possible weakness?

The Stock Market Is Priced for Middling Returns-No Matter What the Fed Does

Half point or quarter? Soft landing or hard? Sticky inflation or a slowdown in jobs?

These things might influence the stock market's next gyrations, but long-term retirement plunkers can safely ignore them in predicting what's to come. Returns over the next decade are likely to be modest, no matter the Federal Reserve's next steps, simply because investors have had it too good for too long.

Hezbollah Pagers Explode in Apparent Attack Across Lebanon

BEIRUT-Pagers carried by thousands of Hezbollah operatives exploded at about the same time Tuesday afternoon in what appeared to be an unprecedented attack that authorities said injured almost 2,800 and killed nine across Lebanon.

Many of the affected pagers were from a new shipment that the group received in recent days, people familiar with the matter said. A Hezbollah official said many fighters had such devices, adding that some people felt the pagers heat up and disposed of them before they burst.

UAW Clashes With Jeep Maker Stellantis, Threatening Strike

The United Auto Workers is once again taking aim at the Jeep maker, Stellantis, after threatening to go on strike at the company's U.S. factories over delays in reopening an idled plant in Illinois and other points of contention.

UAW President Shawn Fain, talking to members Tuesday evening, said the union was taking the next steps to prepare for a work stoppage, including a completion of the grievance process and having some UAW locals take strike-authorization votes. While those votes don't lead to immediate action, they indicate members' support for a walkout.

Meta Bans Russia's RT From Facebook, Instagram for 'Foreign Interference'

Facebook owner Meta Platforms is kicking Russian TV channel RT off its apps, depriving the Kremlin-backed media outlet of one of its biggest remaining distribution platforms in the West.

The ban comes days after the U.S. government announced sanctions against the state-owned channel and its related entities, accusing them of carrying out covert influence operations aimed at interfering in foreign elections, including recent Moldovan elections.

BlackRock, Microsoft Partner on Massive New AI Infrastructure Fund

BlackRock, Microsoft and United Arab Emirates state-backed investor MGX are partnering on a new artificial-intelligence infrastructure fund that aims to raise $30 billion to invest in data centers and related power infrastructure.

After raising the private-equity capital from investors, the partnership could deploy up to $100 billion in total capital when including debt financing, the parties said Tuesday. Most of the infrastructure investments will be made in the U.S.

JPMorgan in Talks With Apple to Take Over Credit Card From Goldman

JPMorgan Chase is talking with Apple about taking over the tech company's credit-card program.

Discussions started earlier this year and have advanced in recent weeks, but a deal could still be months away, according to people familiar with the matter. It isn't guaranteed a deal will come together, because crucial details, including the price, are still to be negotiated.

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Expected Major Events for Wednesday

06:00/UK: Aug UK producer prices

06:00/UK: Aug CPI

06:00/SWE: Aug Labour Force Survey

07:00/SVK: Aug Harmonized CPI

07:00/AUT: Aug CPI

08:30/UK: Jul UK House Price Index

09:00/MLT: Aug Harmonised CPI

09:00/CYP: Aug Harmonised CPI

09:00/EU: Aug Harmonised CPI

09:00/EU: Jul Construction output

10:00/POR: Aug PPI

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(END) Dow Jones Newswires

September 18, 2024 00:15 ET (04:15 GMT)

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