As we delve into the latest happenings in the U.S. and global markets, a significant shift is underway. With the first Federal Reserve interest rate cut anticipated for 2025 now almost a certainty, market participants are eager for indications on subsequent rate adjustments. This sentiment has contributed to the stabilization of the U.S. dollar at four-year lows against the euro, particularly in light of today's crucial decisions.
On Tuesday, U.S. stocks experienced a stagnation, while futures remained flat as investors awaited the market bell. Current projections suggest that bets on a Fed rate cut are trending towards a modest 25 basis points, especially after the announcement of a robust 5% annual growth in retail sales for August, which tempered expectations for a more significant rate change this week. Concurrently, the price of gold saw a decline.
In contrast, U.S. long bonds rallied, driven by strong demand for 20-year debt at Tuesday's auction. As a result, the yield on 30-year bonds plunged to a 4.62%—the lowest in four and a half months—just ahead of the Fed's announcement. This environment raises intriguing questions about whether the Fed may soon begin to stimulate an already robust economy and how challenging it is to pinpoint the exact neutral rate.
In today's market update, several noteworthy events have unfolded:
President Donald Trump announced an agreement between the U.S. and China to allow TikTok to continue operating in the United States, with sources indicating that this deal closely resembles prior discussions from earlier this year. The U.S. and Britain have established a technology pact aimed at strengthening ties in fields such as AI, quantum computing, and civil nuclear energy. This Tech Prosperity Deal coincides with President Trump's second state visit to Britain, which commences on Wednesday. Trump's renewed initiative to eliminate quarterly corporate disclosures appears to have a higher likelihood of success this time, as the White House exerts greater influence over the Securities and Exchange Commission agenda. The administration has expressed dissatisfaction with Chair Jay Powell’s management of inflation control, a sentiment echoed by Stephen Jen, CEO of Eurizon SLJ Asset Management. Despite initial perceptions of a broad 'de-dollarization' trend affecting U.S. equity exposure, analysts, including Jamie McGeever, suggest that this narrative is losing traction as U.S. stocks continue to achieve new tech-driven highs.There are numerous factors that the Federal Reserve may consider if it decides to resume policy easing with its first interest rate cut of the year on Wednesday. However, the current pace of GDP growth, strong retail sales, the loosest financial conditions in over three years, and elevated inflation levels do not provide a compelling case for drastic rate changes.
As we look ahead, several key events are slated for today:
U.S. August housing starts and permits data will be released at 8:30 AM EDT. The Bank of Canada will announce its policy decision at 9:45 AM EDT, followed by a press conference at 10:30 AM EDT. The U.S. Federal Reserve is expected to unveil its policy decision along with updated economic and rate projections at 2:00 PM EDT, with a press conference at 2:30 PM EDT. European Central Bank President Christine Lagarde is set to speak. President Trump will be visiting Britain. Corporate earnings reports from General Mills and Progressive are also anticipated.For those interested in staying informed, consider signing up for the Morning Bid newsletter, which delivers key market insights directly to your inbox every weekday morning.
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The opinions expressed in this article are solely those of the author and do not reflect the views of Reuters News. Under the Trust Principles, Reuters is dedicated to maintaining integrity, independence, and freedom from bias.
Mike Dolan serves as the Editor-at-Large for Finance & Markets at Reuters and has extensive experience covering global economics and financial markets. Based in London, he has also reported from Washington D.C. and Sarajevo, offering insights from a diverse range of international events. A graduate in economics and politics from Trinity College Dublin, Dolan has previously worked with Bloomberg and Euromoney, earning accolades for his reporting during the financial crisis of 2007/2008 and on Frontier Markets in 2010.
