Two-way action was seen following the FOMC, SEPs and Chair Powell’s press conference. A dovish reaction was seen after the Fed cut rates by 25bps, as expected, which was accompanied by dovish SEPs, as 50bps of further rate reduction is now seen in 2025, against the prior, and expected, 25bps of additional cuts. Do note, it was a tight call as 10/19 saw 50bps (or more) of cuts, while the other 9 saw 25bps (or less). The Fed also adjusted its guidance to signal a clearer path of easing ahead. In reaction, the Dollar was sold while Equities and Treasuries saw upside; however, the moves had started to pare as participants awaited the Powell presser. In the press conference, he was notably more hawkish than the statement and SEPs implied, which saw these moves reversed. The Fed Chair said he does not feel the need to move quickly on rates, and that you could think of Wednesday’s cut as a risk management cut, and that decisions will be taken on a meeting-by-meeting approach. Elsewhere, the crude complex was choppy, but settled lower in thin newsflow despite bullish weekly EIA data. Sectors were mixed, as Financials and Consumer Staples sit atop of the pile, while Technology lagged and was weighed on by NVIDIA (-2.6%) weakness after China shunned NVDA chips from Chinese tech companies. As mentioned, the Dollar eventually gained to the detriment to G10 FX peers in the wake of Powell, with the Canadian Dollar little moved on the Bank of Canada earlier in the day. For the record, spot Gold hit another all-time-high above USD 3.7k/oz in the wake of the FOMC statement but fell back beneath the level as Powell spoke. The Fed cut rates by 25bps to 4.00-4.25%, citing a shift in risk balance. Bowman and Waller joined consensus, calling for a 25bps reduction; new Governor Miran dissented, preferring a 50bps cut. Nine of 19 officials see two additional cuts in 2025, two see one cut, six see no more reductions. Adjusts guidance to state that “in considering additional adjustments to the target range for the federal funds rate…” from “in considering the extent and timing of additional adjustments”. In its statement, it also tweaked its labour market view, downgrading language (no longer ‘solid’, unemployment has edged up but ‘remains low’ and adds that ‘job gains have slowed’). This years unemployment rate forecast, PCE and core PCE were unchanged; for next year, unemployment was revised lower, PCE and core PCE were raised (the statement notes that inflation has moved up and remains ‘elevated’). In his press conference Fed Chair Powell was more hawkish than the statement and dot plots implied. He reiterated the usual SEP language that this is not a set path of rates. He also mentioned the close split on the dot plot for this year (10 see two or more rate cuts, 9 see fewer than that), and to look at projections through the lens of probabilities. The Fed Chair also exclaimed that the Fed does not feel the need to move quickly on rates, and that you could think of yesterday’s cut as a risk management cut. He also said that he does not think a quarter-point cut will have a great impact, and also said there was no widespread support for a 50bps rate cut. Looking ahead, he did not want to commit to a policy path but said decisions will be made on a meeting-by-meeting basis, and they will be looking at the data. He highlighted that downside risks to the labour market have increased, while he noted that he sees inflation rising this year as goods prices rise from tariffs, but reiterated that he expects it to be a one-time rise. It is clear that the labour market concerns are the priority at the moment. Powell spoke several times of the downside risks to employment and noted it is the risks to the labour market that were the focus of Wednesday’s decision. He added it is clear the labour market breakeven rate has come down significantly but could say the breakeven rate is between 0 and 50k. Powell noted that policy had been skewed towards inflation, but is now moving in the direction of a more neutral policy, which will be better for the labour market. On the balance sheet, he said they are still in an abundance of reserves, but he does not think it would have a macro effect. The Bank of Canada cut interest rates by 25bps to 2.50%, in line with expectations. This takes rates 25bps below the midpoint of the BoC’s neutral rate estimate from the July MPR. Governor Macklem said there was a clear consensus to cut rates, while the statement noted that the reduction was appropriate given the weaker economy and fewer upside risks to inflation (like the removal of most retaliatory tariffs on imported goods from the US). It also felt a cut was appropriate to better balance the risks. On the labour market, the statement noted that job losses have largely been concentrated in trade-sensitive sectors while employment growth in the rest of the economy has slowed, reflecting weak hiring intentions. It also acknowledged the 7.1% Unemployment Rate in August, while wage growth has continued to ease. On inflation, it noted on a monthly basis that the upward momentum seen earlier this year has dissipated, while a broader range of indicators continue to suggest underlying inflation is running around 2.5%. It removed its language from July that in the event of a weakening economy, and if inflation pressures are contained, “there may be a need for a reduction in the policy interest rate”. Instead, acknowledging how the “Governing Council is proceeding carefully, with particular attention to the risks and uncertainties.” It acknowledged that the disruptive effects of shifts in trade will continue to add costs even as they weigh on economic activity. Looking ahead, ING suggests yesterday’s cut should not be the last one, noting how, despite no forward guidance, the central bank is keeping options open, and the assessment on inflation, growth, and the labour market points to another Q4 cut. ING expects a cut in December, but cannot exclude October and even further easing beyond that, noting that the Canadian Dollar should remain unattractive. Elsewhere, both Oil and Gold closed lower by 0.75% and 0.3% respectively.
To mark my 3250th issue of TraderNoble Daily Commentary I am offering a special 2-Year Rate of Euro 2750 for my Platinum Service which includes 1 to 4 updated emails throughout the trading day to demonstrate this value, a monthly subscription over the same period would cost 4440 euro in total This offer represents a 38% discount and is open to both new and existing members. If anyone is interested in this offer can you please email me on bryan@tradernoble.com for details
For anyone following my Platinum Service it made 520 points yesterday and is now ahead by 1642 points for September after ending August with a gain of 3362 points after closing July with a gain of 3753 points after closing June with a gain of 3530 points, having closed May with a gain of 3606 points, after closing April with a gain of 7685 points after closing March with a gain of 2254 points while closing February with a gain of 4180 points. January ended with a gain of 2768 points while 1997 points were gained in December. October ended with a gain of 2179 points, after closing September with a gain of 4402 points, following a loss of 301 points in August. July gained 1908 points while June saw a gain of 2074 points. The Platinum Service made a record 9619 points in October 2022. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 2300 points. I have a YouTube Channel which contains recent interviews I have given This can be viewed by clicking HERE Please subscribe to this for new interview notification
Equities
The S&P 500 closed 0.10% lower at a price of 6600.
The Dow Jones Industrial Average closed 260 points lower for a 0.57% gain at a price of 46,018.
The NASDAQ 100 closed 0.21% lower at a price of 24,223.
The Stoxx Europe 600 Index closed 0.03% lower.
This Morning, the MSCI Asia Pacific closed 0.3% higher.
This morning, the Nikkei closed 1.26% higher at a price of 45,352.
Currencies
The Bloomberg Dollar Spot Index closed 0.41% higher.
The Euro closed 0.39% lower at $1.1819.
The British Pound closed 0.13% lower at $1.3629.
The Japanese Yen fell 0.31% closing at $146.92
Bonds
U.K.’s 10-Year Gilt closed 2 basis points lower at 4.63%.
Germany’s 10-Year Bund Yield closed 1 basis points lower at 2.67%
U.S.10 Year Treasury closed 6 basis points higher at 4.09%.
Commodities
West Texas Intermediate crude closed 0.73% lower at $64.05 a barrel.
Gold closed 0.82% lower at $3660.10 an ounce.
This morning on the Economic Front we have speeches from ECB President Lagarde at 8.10 am and De Guindos at 9.00 am, followed by Euro-Zone Construction Output at 10.00 am. This is followed by the Bank of England Rate Announcement at 12.00 pm. Next, we have U.S. Weekly Jobless Claims and the Philly Fed Manufacturing Index at 1.30 pm. Finally, we have Leading Index at 3.00 pm.
Cash S&P 500
As expected, the Fed cut rates by 0.25% yesterday. This was no surprise and had been flagged from Powell’s Jackson Hole speech last month. Really, there was nothing in the dot plot that was unexpected. Under Jay Powell’s leadership, the Fed thinks that neutral rate is around 3%, which is the level I have been expecting as the neutral rate for some time. So if you are wondering why the 10-year yield rose following the rate cut, I would attribute it to two factors: it is still taking longer to get inflation back to 2%, and the neutral rate seems to be coming into clearer view. Right now, the 10-year minus the 3-month spread is only 10 bps. A 3-month Treasury at 3% suggests a 10-year at 5%, based on historical spreads, and potentially as high as 6.8%. Perhaps this will change in a couple of days, and rates across the curve will collapse. I just do not think that is likely to happen unless we find out we are entering a recession. The S&P 500 was hit fairly hard following the FOMC statement and the start of the press conference, largely because the volatility drop was slow to materialise. Still, it ultimately saved the day, with the Index rallying by almost 1% between 2:50 PM ET and 3:10 PM ET. This rally has continued overnight with the S&P trading higher to my sell range for a now 6632 short position. I am still short and I will add to this position at 6652 while leaving my 6671 ‘Closing Stop’ unchanged. I will now raise my T/P level on this position to 6609 as I would expect some if not all of last night’s Chicago 6600 close to be filled. If any of the above levels are hit, I will be back with a new update for my Platinum Members.
EUR/USD
The Euro hit a post FOMC high of 1.1920 before finally meeting some strong selling. This selling continued overnight with the Euro now trading at 1.1785. I am still short at an average rate of 1.1810 with the same 1.1925 ‘Closing Stop’. I will leave my 1.1750 T/P level unchanged. If any of the above levels are hit, I will be back with a new update for my Platinum Members.
Dollar Index
I am still long the Dollar at an average rate of 97.35 with the same 97.80 T/P level. I will also leave my 96.45 tight ‘Closing Stop’ unchanged for now. If any of the above levels are hit, I will be back with a new update for my Platinum Members.
Russell 2000
The Russell was strong yesterday, trading higher to my sell range for a now 2425 average short position. I will add to this trade on any further move higher to 2475 while leaving my 2505 ‘Closing Stop’ unchanged. I will now raise my T/P level to 2390. If any of the above levels are hit, I will be back with a new update for my Platinum Members.
FTSE 100
The boring sideways price action in the FTSE continues. It is as if the market has stopped trading. The Monthly RSI for the FTSE is now the most overbought since 2007. Against this backdrop there is no justification in buying the market without having a meaningful correction first. The FTSE has resistance from 9250/9330 where I will be a seller with a 9405 ‘Closing Stop’. If I am taken short, I will have a T/P level at 9260. Meanwhile, I will continue to be a buyer on any dip lower to 9040/9120 with the same 8995 ‘Closing Stop’. If I am taken long, I will have a T/P level at 9180.
Dow Rolling Contract
My Dow plan worked well. The Dow rallied to my 46200-sell level before falling over 500 points. Yet again you had to be quick to take any gains as the market quickly reversed and is trading at a price of 46150 this morning. Wednesday’s post FOMC Statement move lower saw my 45870 T/P level triggered and I am now flat. Today, I will again be a seller from 46350/46600 with a higher 46805 ‘Closing Stop’. If I am taken short, I will have a T/P level at 46010. I still have no interest in buying the Dow at this time.
Cash NASDAQ 100
The NDX sold off to my 24190 T/P level on my latest 24380 short position. This move happened ahead of the FOMC Statement and I am still flat. With the NDX now trading at the top of its Daily Bollinger Band I will continue to sell rallies. Today, my sell range will be from 24420/24580 with the same 24705 ‘Closing Stop’. If I am taken short, I will have a T/P level at 24190.
December BUND
I am still flat. Today, I will leave my 128.40/129.10 buy level unchanged with the same 127.85 ‘Closing Stop’. If I am taken long, I will have a T/P level at 129.85. I still do not want to be short the Bund at this time.
Gold Rolling Contract
Gold just missed Wednesday’s sell range before falling $59 off its 3708 new all-time high. With a Monthly RSI of 88 there is absolutely no risk/reward in being a buyer at these levels. I will now lower my sell level to 3700/3720 with a lower 3735 ‘Closing Stop’. If I am taken short, I will have a T/P level at 3678.
Silver Rolling Contract
I am still long at a price of 41.80 with a now lower 42.20 T/P level. I will add to this position at 40.70 while leaving my 39.55 ‘Closing Stop’ unchanged. If any of the above levels are hit, I will be back with a new update for my Platinum Members.
Please Note: There will be no Daily Commentary tomorrow. Any of my calls that are not triggered today and are subsequently executed on Friday will see me return with updated emails for my Platinum Members.
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