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South Korea’s finance minister Choi Sang-mok

• said the government will closely coordinate with the central bank and regulators to deploy contingency plans for financial markets if needed as external uncertainties persist after the Fed lowered interest rates

• also said he expects South Korea’s household
  debt growth to gradually ease
• but stands ready to
  swiftly announce additional measures should borrowing pick up
  faster than expected

—

Lower Fed rates are a welcome development for reducing pressure on the KRW at least. USD/KRW chart:

This article was written by Eamonn Sheridan at www.forexlive.com.

The bill was to fund the government for 6 months. Its failed. There are 12 days until the government shuts down.

Reuters:

• The
  Republican-controlled U.S. House of Representatives on Wednesday
  voted to defeat a stopgap government funding bill brought
  forward by Republican Speaker Mike Johnson, as some members of
  his own party opposed the measure.
• It was unclear what next steps Johnson will take to avoid a
  partial government shutdown beginning on October 1, when money for
  many federal agencies would be depleted.

This article was written by Eamonn Sheridan at www.forexlive.com.

New Zealand economic growth data for the April to June quarter of 2024

NZD/USD is around 0.6219, not a lot of change on this result.

–

New Zealand’s economy
contracted in Q2

• retail trade and accommodation, agriculture, forestry,
  and fishing and wholesale trade slowed

The Reserve Bank
of New Zealand had forecast the economy contracted by 0.5%.

This article was written by Eamonn Sheridan at www.forexlive.com.

The jobs market report for August is due today from the Australian Bureau of Statistics:

• 11.30 am Sydney time
• 0130 GMT
• 2130 US Eastern time

As you’ll see in the screenshot below, the previous month’s report, July, showed another huge gain in jobs, carrying on the trend of strong employment growth over the past year. Note also that the unemployment rate, and participation, both rose. Particiaption is at a record high.

Expectations are for a more subdued gain in employment, stable participation and stable unemployment.

The RBA has a twin mandate, in summary its stable inflation (the target band is 2 – 3%) and full employment. The RBA is endeavouring to not lose too many of the employment gains its seen and to drive inflation lower at the same time. Upcoming developments on inflation are expected to be encouraging, as I posted yesterday:

• Australia CPI preview – CBA expect “Headline inflation in August back within RBA’s target”
• Australian August Monthly CPI preview – Westpac expect 2.7% y/y for the monthly read

• This snapshot from the ForexLive economic data calendar, access it here.
• The times in the left-most column are GMT.
• The numbers in the right-most column are the ‘prior’ (previous month/quarter as the case may be) result. The number in the column next to that, where there is a number, is the consensus median expected.

This article was written by Eamonn Sheridan at www.forexlive.com.

China took action against nine U.S. military-affiliated companies on Wednesday in response to U.S. arms sales to Taiwan, freezing their assets within China.

This move is the latest effort to increase pressure on the United States to cease its weapons sales to the island.

Organisations and individuals within China are prohibited from engaging in transactions with the firms.

Info via Reuters, there is a little more info at the link.

Mainland China’s Communist Party rulers assert the right to rule Taiwan. The people of Taiwan currently enjoy democracy and self-determination. Hence the conflict.

This article was written by Eamonn Sheridan at www.forexlive.com.

• US equity close: Big Fed cut can’t fuel an 8th day of gains
• The ‘ole FOMC ‘sell the fact’ hits again
• Crude oil settles down eight cents at $69.88
• Powell Q&A: We concluded that 50 basis point cut was the right thing
• Powell opening statement: We’re committed to preserving our economy’s strength
• Gold rallies to a record high after the Fed slashes rates by 50 basis points
• The USD knee jerk is to the downside after Fed cuts by 50 bps
• A comparison of the July 2024 FOMC statement to the September 2024 FOMC statement
• FOMC September 2024 dot plot and central tendencies of economic forecasts
• The full statement from the September 2024 FOMC rate decision
• Federal Reserve September interest rate decision: 50 basis point cut
• Bank of Canada minutes: Some members were more concerned about downside inflation risks
• Video: One spot to fade after today’s FOMC decision
• European close: Trepidation ahead of the Fed decision
• Former Fed Pres. Mester: It is a really close call. Good case for a series of 25 bp cuts
• Atlanta Fed GDPNow growth estimate for Q3 falls to 2.9% from 3%
• EIA crude oil inventories fall -1.630M barrels vs -0.500M estimate
• Former St Louis Fed President Bullard: The FOMC should cut by 25 bps
• If trading the September FOMC in the FX, it is mandatory to know the roadmap up or down.
• US August housing starts 1.356m vs 1.310m expected
• The NZD is the strongest and the USD is the weakest as the NA session begins
• ForexLive European FX news wrap: Sterling up after UK CPI, markets mixed awaiting Fed
• US MBA mortgage applications w.e. 13 September +14.2% vs +1.4% prior

The Federal Reserve Bank started the easing cycle with a cut of 50 basis points. The Fed “recalibrated” the policy stance away from when inflation was high and employment low. The baseline is now inflation is steady, and the employment is not as low. The Fed wants to get the rate down. It wants to take some of the restrictiveness out, BUT the economy is not falling out of bed.

With two meetings to go, the Fed still sees 2 more cuts of 25 basis points. Is that 25 and 25 basis points in November and December or is it nothing and 50 basis points in December. The market still sees 125 basis points in 2024 (inclusive of the 50 bps today) while the Fed only 100 basis points.

Looking at comments, bucketing the comments into topics looks like this:

Here are Fed Chair Powell’s comments organized by topics:

Economy

• Powell does not see anything suggesting an elevated likelihood of a downturn in the economy.
• GDP growth is expected to remain solid.
• Retail sales and Q2 GDP indicate the economy is growing at a solid pace.
• Consumer spending has remained resilient.Summary: The economy is good.

Interest Rates and Inflation

• Rates will move toward more normal levels over time, but the Fed is not declaring victory on inflation yet.
• Inflation has eased but remains above the Fed’s 2% target.
• Wage increases are slightly above the Fed’s 2% inflation goal.
• Longer-term inflation expectations are anchored, and the Fed’s patient approach has been effective.
• The Fed is not behind the curve on rate moves, reflecting the Fed’s commitment to not fall behind.
• No expectation of a return to negative rates for long-term bonds.
• Projections show a wide range of estimates for the neutral rate.
• The Fed’s policy stance remains restrictive to bring inflation down.

Summary: Still hedges against inflation and that will keep the declines in rates measured. The neutral or perhaps terminal rate is anyone’s guess.

Labor Market

• The unemployment rate remains healthy.
• Labor market participation is strong.
• Job vacancies remain strong, and quits have normalized.
• The labor market is less tight than it was before the pandemic.
• Powell acknowledges rising downside risks to employment.
  • Further declines in job openings may impact unemployment directly.
  • Immigration has helped manage unemployment levels.
• The Fed may be at its mandate for full employment but will monitor and adjust to support the labor market.
• No loosening in the labor market is necessary to reach the Fed’s 2% inflation goal.
• Now is the time to support the labor market while it is strong.Summary: Not panicking on unemployment going higher

Housing

• Housing inflation is lagging.
  • Market rents are not coming down as expected.
  • The housing market is frozen due to higher rates.
  • Powell expects the housing market to normalize as rates come down.
  • The main issue in housing is a lack of supply.
• Housing sector investment fell in Q2.Summary:Same ole same ole. Not enough supply. If rates come down, maybe people move but rates need to come down and give people a reason to sell/move.

Monetary Policy

• The Fed is operating on a meeting-by-meeting basis with no preset course.
  • Adjustments will be made as necessary based on economic conditions.
  • The Fed can speed up, slow down, or pause rate cuts as needed.
  • Policy will continue to restore the supply-demand balance.
• Balance sheet and policy rate moves are part of normalizing the economy.
  • Banks are improving IRR management and are well-positioned for anticipated cuts.
• The Fed’s reserves are stable and expected to remain abundant.
  • There are no plans to stop the runoff anytime soon.

Summary:All is on the table except raise rates going forward. No preset roadmap despite the dot plot I guess.

General Commentary

• No one should assume that current conditions reflect a new pace of growth.
• The Fed’s decisions reflect patience and are timely to ensure the Fed stays ahead of economic trends.Summary: A bit of a pat on the back for being patient and suggests the Fed is leading the economic shifts to continue to glide into the soft landing.

The next meeting is not until after the November election. That perhaps may have been the main reason for 50 bps now. Between now and November 7 there will be:

• Employment: October and November
• CPI and PPI: October
• PCE and Core PCE: September and October

The market reaction in the forex was for the USD to move lower. However, as the commentary continued, and technical targets could not be reached, the flow of funds started to whittle away at the dollars declines. By day’s end, the greenback was surpassed by the CAD as the weakest of the major currencies, and although the USD is lower, it is more near unchanged on the day vs the EUR, JPY, CHF, CAD and AUD (changes of 0.2% to 0.11%). The dollar was lower by 0.30% vs the GBP and the NZD. What we know for sure, is the dollar whipped traders around. The GBP and the NZD are ending as the strongest currencies today.

US stocks also whipped around with gains being erased by the close and the major indices closing lower on the day.

• Dow industrial average, -0.25%
• S&P index, -0.29%
• NASDAQ index, -0.31%
• Russell 2000, +0.04%

Looking at the US debt market the 2 and 5 year are near midpoint levels on the day, while the longer 10 and 30 year are near the highs. All points on the curve are higher despite the cut in rates:

• 2 year yield 3.69%, +3.6 basis points
• 5 year yield 3.491%, +5.8 basis points
• 10 year yield 3.707%, +6.6 basis points
• 30 year yield 4.027%, +7.5 basis points. .

In other markets:

• Crude oil is lower hundred day by about 1.05%.
• Gold – after extending to new all-time highs after the cut (at $2600.14) – is trading at $2558 or -0.43%.
• Silver is trading down -2.10% and $30.03
• Bitcoin is just above the $60,000 level at $60,195.

This article was written by Greg Michalowski at www.forexlive.com.

New Zealand economc growth data leads off the calendar. Another contraction for the economy is expected. I posted earlier in the week in the view from NZ Treasury:

• New Zealand Treasury see more positive data, but no firm sign of a recovery just yet

Australian labour market data follows. I’ll have more to come on this separately.

• This snapshot from the ForexLive economic data calendar, access it here.
• The times in the left-most column are GMT.
• The numbers in the right-most column are the ‘prior’ (previous month/quarter as the case may be) result. The number in the column next to that, where there is a number, is the consensus median expected.
• I’ve noted data for New Zealand and Australia with text as the similarity of the little flags can sometimes be confusing.

This article was written by Eamonn Sheridan at www.forexlive.com.

Good morning, afternoon and evening all. Any charts, technical analysis, trade ideas, thoughts, views, ForexLive traders would like to share and discuss with fellow ForexLive traders, please do so:

This article was written by Eamonn Sheridan at www.forexlive.com.

The Fed delivered a big cut but it was a case of ‘sell the fact’ as equities couldn’t keep the winning streak going.

I think at the end of the day, you have a ‘Fed put’ now and that wins out but we could see a squeeze tomorrow.

• S&P 500 -0.2%
• Nasdaq Comp -0.2%
• DJIA -0.2%
• Russell 2000 +0.3%
• Toronto TSX Comp -0.2%

The big problem coming into the decision was that stocks were riding a 7-day rally and right up against the all-time highs. As I noted, that’s a tough hand to deal the FOMC.

This article was written by Adam Button at www.forexlive.com.

We’ve seen this one before.

You can game out the Fed decision as much as possible but the market loves to punish both sides of the trade. That’s exactly what we’re getting at the moment as the US dollar recoups all its FOMC losses, and in some cases more than that.

I think the bond market captures some of the worry. US 10-year yields are now up 6 basis points on the day to 3.69%. Some of that came before the decision but yields are still higher in the aftermath.

I believe the thinking there is something I warned about before the Fed: The idea that by cutting more now, the Fed won’t have to cut as much later, leaving the terminal rate higher. That’s also something you could argue is bullish for the US dollar.

It comes back to what Powell said at the start of the press conference: They want to preserve the strength of the economy. If the Fed is successful in that, it’s ultimately good for the US dollar and means we won’t return to the era of 1-2% Fed funds and instead will be in a +2% regime. I don’t think that’s the case in Europe or many other G10 currencies.

That said, I don’t think this debate is over. At the end of the day, 50 bps is still 50 bps and the Fed could very well be behind the curve, particularly if the US fiscal picture tightens next year.

Increasingly, the best trade on Fed day is to wait for the dust to settle because these kinds of whipsaws are increasingly common. When I look out to next September, the Fed funds market is pricing in 189 bps in additional easing which is basically the same as the 187 bps before the decision.

This article was written by Adam Button at www.forexlive.com.

The price of crude oil is trading lower as the Fed Powell is conference continues.

The settlement price came in at $69.88, and the current price is trading at $69.35.

The low for the day reached $68.61. The high for the day was at $70.28.

This article was written by Greg Michalowski at www.forexlive.com.

Everything has aligned for gold in the past six months with Chinese investors looking for something new, Russia diversifying and the Fed getting on top of inflation. Eyes are on $2600 now but it’s all blue skies from a technical perspective now.

This article was written by Adam Button at www.forexlive.com.