EMEA Morning Briefing: Stock Futures Rise as Big Fed Cut Boosts Mood

MARKET WRAPS

Watch For:

BOE rate decision; trading updates from Next, Ocado

Opening Call:

European stock futures rose, tracking moves by U.S. equity futures and Asian stock benchmarks. The dollar and Treasury yields advanced; while oil and gold futures fell.

Equities:

Stock futures advanced early Thursday as markets reacted to the Federal Reserve's outsize rate cut amid efforts to chart a course for a soft landing.

Later today, the Bank of England is expected to keep interest rates unchanged later today after getting ahead of the Fed at the beginning of August.

Data Wednesday showed U.K. headline inflation remained stable close to the BOE's target in August, but services inflation accelerated to 5.6% from 5.2% in the previous month.

BOE Governor Andrew Bailey has pursued a hawkish message since agreeing to cut the bank rate in August, advocating in Jackson Hole that policy setting will need to remain restrictive, which could prompt only one further cut before the end of the year, said Pierre Roke, associate at Validus Risk Management.

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The start of the Fed's easing cycle should be seen as a significant signal for increasing exposure to shares, said Chris Galipeau, senior market strategist with the Franklin Templeton Institute.

Since 1990, when the Fed is cutting rates, large cap growth and small cap growth have generated the strongest performance in the 12 months following the initial rate cut, he said. "As a result, we view any pullback as a buying opportunity," Galipeau added.

Forex:

Overnight action in foreign-exchange markets suggests the "downside momentum of the USD has run into fatigue," Maybank said.

The rebound of the USD Index means that even with a 50bps Fed rate cut, "USD bearish momentum has run out of steam from the rates perspective and it is now up to global growth momentum outside of the U.S. to take the USD lower," Maybank added.

Bonds:

U.S. Treasury yields likely have potential scope to retrace higher in the near term, given that another 50 bps worth of Fed rate cuts are far from certain, TD Securities said.

Markets' pricing for Fed rate cuts this year may also decline if U.S. labor market data continue to show relative stability, it added. TD Securities remains buyers of dips in yields and looks for the yield curve to keep steepening.

Energy:

Oil futures edged lower early Thursday. Demand concerns have outweighed supply risks from rising tensions in the Middle East, ANZ said.

U.S. government data showed declining gasoline demand and jet fuel consumption. The possibility of a hard economic landing is also weighing on sentiment as reflected in speculative net long positions in Brent futures, which have turned bearish for the first time, ANZ added.

Metals:

Gold fell in Asia, falling back after front-month Comex gold for September delivery posted its third-highest close ever on Wednesday.

However, the Fed's 50bp rate cut overnight serves as the beginning to a rate-cut cycle that markets have been waiting for a long time and could fuel appetite for assets like gold, said Bas Kooijman, CEO and asset manager of DHF Capital. The size of the rate cut also opens the way for more aggressive actions in coming months, Kooijman added.

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China's property indicators continue to paint a bleak picture for bulk commodities, ANZ said. Falling sales and contracting new starts seem to suggest that the property crisis will continue and have little room for any significant recovery in steel demand, ANZ said.

"Weak steel consumption and negative mill margins will keep iron ore demand subdued," the bank added.

TODAY'S TOP HEADLINES

Fed Cuts Rates by Half Percentage Point

The Federal Reserve voted to lower interest rates by a half-percentage point, opting for a bolder start in making its first reduction since 2020. The long-anticipated pivot followed an all-out fight against inflation that the central bank launched two years ago.

Eleven of 12 Fed voters backed the cut, which brings the benchmark federal-funds rate to a range between 4.75% and 5%. Quarterly projections released Wednesday showed a narrow majority of officials penciled in cuts that would lower rates by at least a quarter-point each at meetings in November and December.

Big Rate Cut Forces Fed to Contend With New Obstacles

Fed Chair Jerome Powell entered a new phase in his campaign to softly land the U.S. economy, lowering interest rates Wednesday with an audacious half-point cut. The move raised new questions the central bank can't easily answer.

At the same time, the rate cut did clarify the answer to a more important question about the Fed's overarching goal. It underscored Powell's desire to prevent the central bank's past rate rises from tipping the economy into recession now that inflation is heading down.

The Fed Has Significantly Improved the Odds of a Soft Landing

In the past month, something that once seemed impossible suddenly became likely. After four years of upheaval, the U.S. now seems to have low inflation, low unemployment, and solid economic growth.

The popular term for this is soft landing. A better word is "normal." This is what an economy is supposed to look like.

U.S. Importers Are Pulling in Goods Early as Possible Port Strike Draws Closer

U.S. importers are rushing in millions of dollars' worth of electronics, holiday goods and industrial materials to get ahead of a possible strike by dockworkers in less than two weeks that threatens to lock down major ports and hammer the American economy.

The drive has gained urgency as a walkout by 45,000 dockworkers at ports from Maine to Texas has grown more likely, swamping West Coast ports with big cargo volumes as companies redraw their supply chains to get away from the looming labor turmoil.

Bond market gets a Fed wake-up call after pricing in a recession

The Federal Reserve moved in a big way on Wednesday to immediately lower borrowing costs for the first time in four years.

The central bank's first interest-rate cut since 2020 slashed its short-term policy rate by half a percentage point, bringing it down to a target range of 4.75% to 5%.

Why the Bank of England Won't Follow the Fed

The Bank of England will likely keep interest rates unchanged this month, with bank officials making a decision within 24 hours of the Federal Reserve cutting interest rates.

To be fair, at the beginning of August the BOE got ahead of the Fed by making its first cut since the Covid-19 pandemic. That was a tight vote, with a slim 5-4 majority of voters favoring a reduction. Wednesday's half-point Fed-rate reduction marked the first U.S. easing in years.

Danske Bank to Pay $7 Million in French Settlement Over Estonia Money-Laundering

Danske Bank has agreed to pay the equivalent of $7 million in a settlement with French authorities over its failure to stop money-laundering at its former branch in Estonia.

The settlement: Danske Bank, the largest in Denmark, said Wednesday it had cooperated with French authorities and agreed to pay 6.33 million euros in a settlement with France's national financial prosecutor, ending that country's investigation into the bank.

Boeing Furloughs White-Collar Workers as Strike Worsens Cash Crunch

Boeing is furloughing tens of thousands of white-collar employees in an effort to cut costs and avoid a credit-rating cut amid a strike by its largest union.

The jet maker will furlough affected employees for one week out of every four weeks for the duration of the walkout, Chief Executive Kelly Ortberg wrote in a memo to employees Wednesday.

T-Mobile Strikes Deal With OpenAI

T-Mobile US said it would partner with OpenAI to build an artificial-intelligence platform designed to help the telecom company gain and keep customers.

The companies said the new platform, called IntentCX, will harvest data on customer interactions from the millions of T-Mobile subscribers who use its T-Life app. The app, launched this year, combines several existing services like bill management, smartwatch integration and T-Mobile Tuesdays retail deals through a single portal.

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Expected Major Events for Thursday

04:30/NED: Aug Unemployment

06:00/SWI: Aug Trade Balance

06:00/EU: Aug New Passenger Car Registrations in Europe statistics (EU27 + EFTA3)

06:00/SWE: 2Q Financial accounts

08:00/EU: Jul Euro area balance of payments

08:00/POL: Aug Average gross wages

08:00/POL: Aug PPI

08:00/POL: Aug Industrial Production Index

08:00/NOR: Norges Bank monetary policy decision and publication of Monetary Policy Report

09:00/ITA: Jul Balance of Payments

11:00/UK: 3Q Agents' Summary of Business Conditions

11:00/UK: UK interest rate decision

11:00/TUR: Turkish interest rate decision

17:59/POR: Jul Balance of Payments

23:01/UK: Sep UK Consumer Confidence Survey

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September 19, 2024 00:17 ET (04:17 GMT)

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