In an economic landscape punctuated by the Federal Reserve’s unexpected 50 basis point rate cut, last week’s financial markets displayed a robust reaction, setting the stage for what promises to be a volatile yet potentially lucrative week ahead.
As investors recalibrate their portfolios in response to this significant monetary policy shift, the focus now turns to key economic indicators and corporate events that could further steer the market’s direction.
This article delves into the aftermath of the Fed’s decision, offering a detailed recap of last week’s market movements, and a preview of this week’s critical economic calendar, highlighting what traders and investors should watch closely in these dynamic times.
The financial markets witnessed a significant event last week with the Federal Reserve’s unexpected 50 basis point rate cut, marking the first reduction since 2020. This move not only surprised the market but also led to a robust reaction across various asset classes.
Equity markets: Following the Fed’s announcement, US stocks, particularly the S&P 500, surged, closing up 1,5 percent and setting new all-time highs.
Sectors like producer manufacturing, consumer durables, and non-energy minerals led the gains, while consumer non-durables and health sectors lagged.
Commodities and Currencies: The rate cut had immediate effects on commodities. Gold prices soared to record highs, briefly surpassing $2,600/oz, reflecting its status as a safe-haven asset in times of economic uncertainty.
Oil prices also rose, with WTI crude up 4,3 percent for the week. The US dollar weakened, hitting a 14-month low, which typically benefits commodities priced in dollars.
Interest Rates and Yields: Despite the rate cut, 10-year Treasury yields increased, indicating market expectations of future economic stability or inflation concerns. This dichotomy suggests mixed investor sentiment regarding the long-term impact of the Fed’s actions.
Global Sentiment: Globally, markets reacted positively to the rate cut, with a general uptick in equity markets worldwide. However, by Friday, some gains were retraced, suggesting a cautious approach as investors digest the implications of such a significant monetary policy shift.
This week promises to be pivotal with several key economic indicators and events:
Monday: Manufacturing and Services PMIs from major economies set the tone for the week, offering insights into economic health.
Manufacturing PMI (September) came at 47.0, lower than the expected forecast of 48.6. While the Services PMI(September) came at 56.4, higher than the forecast of 55.3.
This implies that the Manufacturing sector contracted over the month of September while the services sector expanded.
Tuesday: US Consumer Confidence (CB) data was crucial, alongside a major tech event by Meta, potentially influencing tech stocks. The CB came out at 98.7 lower than the 103.9 forecast. This implies that the consumer sentiment is bearish for the USD.
Wednesday: New Home Sales data will provide a snapshot of the housing market’s recovery, alongside earnings from Micron Technology, which could sway semiconductor sector sentiment.
Thursday: The second-quarter GDP final reading, alongside Durable Goods Orders, will be closely watched. Fed Chair Powell’s speech could offer clarity on future rate decisions, impacting markets significantly.
Friday: PCE Inflation Data, considered the Fed’s preferred inflation gauge, will conclude the week, potentially influencing future rate expectations.
(i) Gold: With gold hitting new highs, investors are closely watching if it will maintain this momentum, especially with geopolitical tensions adding to its allure as a safe-haven.
(ii) Currency Movements: The dollar’s weakness could continue if the market interprets the rate cut as a sign of economic concern rather than preemptive action against inflation.
(iii) Stock Market: Tech and small-cap sectors might lead if the positive sentiment holds, but any hawkish comments from Fed officials could introduce volatility.
This week’s events are set to provide clearer insights into the global economic trajectory, potentially guiding investor strategies in what has become an increasingly dynamic market environment. Till next time, trade and invest wisely and may the markets be on your side!
Isaac Jonas is a Canadian based economist and consultant at Streetwise Economics. He is also a retail investor and retail trader, focusing mainly on the US and Canadian capital markets. He regularly shares insights via his social media handles. His website is www.streetwiseeconomics.com and can be reachable on [email protected]. Insights shared in this article do not amount to investment advice.
