September 13, 2024

“Wall Street’s key indexes closed above expectations yesterday, while gold soared to a record high of $2,570. Both were driven by inflation data that fuelled hopes for a 25-basis point Federal Reserve rate cut. Meanwhile, traders have lowered their forecasts for further rate cuts by the European Central Bank for the rest of the year.”

Tim Hallinan – Trading Director

USD

On Friday, the dollar fell to its lowest point of the year against the yen, while gold surged to a record high of $2570 as investors increased their expectations for a substantial Federal Reserve interest rate cut next week. Asian shares also saw gains as traders boosted their predictions to a 45% chance of a 50-basis point U.S. rate cut on September 18. As a result, the Dollar Index dipped to a one-week low of 101.00, putting it on the backfoot and losing additional ground against the Euro, with two-year treasury yields back below 3.6% after-hours

GBP

An interest rate cut from the Bank of England next week seems unlikely, but investors will be closely observing the September BoE meeting for hints about future actions and the pace of bond sales. The latest data on price pressures has been mixed: wage growth slowed as anticipated by the Monetary Policy Committee last month, and the economy showed no growth in July. On Thursday, markets assigned a roughly one-in-five chance to a rate cut next week, with a 0.25 percentage point reduction fully expected for November.

EUR

On Thursday, traders reduced their expectations for consecutive rate cuts from the European Central Bank for the remainder of the year, as policymakers offered little insight into their willingness to pursue further monetary easing. Shortly after the ECB’s meeting concluded, it was rumoured that another rate cut at the central bank’s October meeting was unlikely unless there was a significant worsening of the growth outlook. ECB President Christine Lagarde stated that the rate path was not predetermined and that decisions would be made on a meeting-by-meeting basis, with no pre-commitments. Following the meeting, traders lowered their expectations for a 25 basis-point cut to around 20%, down from over 30% beforehand.

Markets

Wall Street’s main indexes ended higher, buoyed by inflation data that bolstered expectations for a 25-basis point Federal Reserve rate cut. However, Moderna’s weak revenue forecast made it the S&P 500’s largest percentage loser. Deutsche Bank raised its year-end S&P 500 target to 5,750 from 5,500, citing stock buybacks, strong corporate earnings, and robust inflows. U.S. mortgage rates fell this week to 6.20%, the lowest since February 2023, from 6.35% last week, but are unlikely to quickly impact the housing market due to high home prices.

Main Economic Events (All Times CET)

10:30am: UK Consumer Inflation Expectations

11:00am: Eurozone Industrial Production

4:00pm: US UoM Consumer Sentiment

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