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There have been two major developments over the past 24 hours, both having a risk off impact on financial markets. The first is the Iran attack on Israel which has escalated geopolitical tension and triggered a flight to safety back into the US Dollar. The second is the International Longshoreman Association strike. read report
Fed rate cut expectations cooled off just a bit on Monday, resulting in a minor bout of demand for the US Dollar. The primary catalyst for the move came from less dovish speak out from Fed Chair Powell and Fed Bowman. read report
Optimism around global growth is running notably higher of late, with financial markets getting a healthy boost, initially from the Fed policy decision, and most recently from the news of the massive stimulus pledge out of China. read report
The BOJ Minutes were out earlier today and offered up no major surprises. The central bank saw more rate hikes ahead, though with uncertainty around the timing and pace of future hikes. Overall, the US Dollar remains under pressure on the monetary policy divergence theme. read report
Market pricing for another 50-basis point rate cut from the Fed in November is what is now driving things, with stocks continuing to extend record highs, accompanied by surging commodities – including record highs for gold, and a falling US Dollar. read report
Fed speak continues to lean dovish post last week’s policy decision and rate cut odds for November have ramped up as a consequence. The market is now pricing a 60% chance for a second 50 basis point cut. All of this Fed pricing and repricing has been behind most of what we’ve seen in markets these past several days. read report
The market continues to show its approval of last week’s Fed decision in which the central bank went ahead with the bigger 50-basis point rate cut, while communicating a message that the US economy was fine. This was the perfect combination to send the US Dollar lower and risk assets flying higher. read report
As we get set to close out the week, there is no disputing the trend in markets. This week’s Fed decision put a stamp on the central bank’s willingness to offer up as much accommodation as possible, while also reflecting its serious commitment to stay ahead of the curve. read report
Market reaction to Wednesday’s Fed decision shouldn’t come as much of a surprise. The Fed went ahead with the bigger 50-basis point rate cut, while offering up a balanced communication. And so, the US Dollar sold off and US equities pushed to fresh record highs. read report
Interestingly enough, despite Tuesday’s stronger round of US data, the market is still pricing a 65% chance the Fed goes ahead with a 50-basis point rate cut later today. This view is grounded in the fact that the Fed needs to play catchup with an ongoing deterioration in the US economy. read report
