It’s the week after the historic Fed rate cut, a 50bps move which saw Chair Powell go all in for a ‘soft landing’. Markets were told they should not expect this size of policy easing to be the norm, due to a relatively solid economy. A gradual move of policy back to neutral, which is nearer 3% than previously thought, is the intention. The updated median dot plot pointed to two quarter point reductions in November and December, and then four next year. This policy path is now seen as longer and more gradual. However, we note that futures markets have still been pricing in nearly three-quarters of a percentage point of cuts for 2024.

Stocks have enjoyed the jumbo-sized bump with record highs seen last week. Lower interest rates are generally considered positive for stocks, especially in high-growth sectors like tech as they encourage economic growth, reduce companies’ debt burdens and spur investments in riskier assets. Small caps, which have higher average levels of debt, have also jumped. Interestingly, according to the investment bank JPMorgan, the Fed has cut rates 12 times with the S&P 500 within 1% of an all-time high. The market was higher a year later all 12 times, with an average return of around 15%.

This week’s key data point will the US personal income and spending report published on Friday, which has the core PCE deflator measure in it. This should confirm that inflation is yesterday’s story and not a barrier to more rate cuts.  Gold bugs will be watching on after a strong close last week into fresh all-time highs. History tells us the precious metal has surged in the last six Fed easing cycles, so more peaks seem likely, especially with an underlying safe haven bid.

In Brief: major data releases of the week

Monday, 23 September 2024

– Global PMIs: The eurozone data is expected to slip with the unwind of the Paris Olympics surge. “UK Exceptionalism” is likely to continue with conditions firmer and focus on price pressures in the service sector. The US figures could see modest tick up in manufacturing.

Tuesday, 24 September 2024

– RBA Meeting: The RBA will leave the cash rate steady at 4.35%. July inflation data remained above the bank’s target range, though private demand and household consumption is sluggish. Policymakers have signalled policy easing won’t kick off until 2025.

– IFO German Business Survey: German business morale is expected to fall for a four consecutive month. The global outlook is subdued which is pushing back recovery hopes in Europe’s biggest economy. Stagnation has seen weak investment and a lack of orders across all sectors. 

Thursday, 26 September 2024

– SNB Meeting: Consensus expects Chairman Jordan’s final meeting to bring a cut of 25bps, taking the Policy Rate to 1.25%. Markets see around a 35% chance of a bigger half-point move. Inflation has eased to 1.1%, well below the bank’s Q3 forecast of 1.5%.

Friday, 27 September 2024

– US Core PCE: The Fed’s favoured inflation gauge is forecast to print at 0.2%. This is one tenth lower than the recent CPI reading due to the lower housing weighting in the core personal expenditure deflator. The updated FOMC economic projections for this figure were 2.3% this year and 2.1% in 2025.