September S&P 500 E-Mini futures (ESU24) are up +1.48%, and September Nasdaq 100 E-Mini futures (NQU24) are up +2.03% this morning on expectations the Federal Reserve’s half-percentage-point rate cut will steer the U.S. economy toward a “soft landing,” while investors awaited a new round of U.S. economic data and an earnings report from delivery services giant FedEx.
The Federal Reserve cut its benchmark interest rate by a half percentage point yesterday, marking its first rate reduction in over four years. The Federal Open Market Committee voted 11 to 1 to reduce the federal funds rate to a range of 4.75% to 5.00% after maintaining it at its highest level in two decades for over a year. In their statement, policymakers indicated they will contemplate “additional adjustments” to rates depending on “incoming data, the evolving outlook, and the balance of risks.” At the same time, Fed Chair Jerome Powell warned not to presume that the half-point move establishes a pace that policymakers will maintain. “This decision reflects our growing confidence that with an appropriate recalibration of our policy stance, strength in the labor market can be maintained in a context of moderate growth and inflation moving sustainably down to 2%,” Powell said in a press conference.
Projections released after the Fed’s two-day meeting revealed that a slim majority, 10 out of 19 policymakers, supported cutting rates by at least an additional half-point during the two remaining 2024 meetings. Also, Fed officials penciled in an additional percentage point of cuts in 2025, according to their median forecast.
“The markets got what they wanted - a big first cut by the Fed. Now we’ll see if they remain satisfied,” said Chris Larkin at E*Trade from Morgan Stanley. “The Fed has a well-deserved reputation for not rushing, so there’s the potential for some disappointment if it’s seen to be moving too slowly, especially if economic data continues to soften. But today they delivered.”
In yesterday’s trading session, Wall Street’s major indices ended in the red. ResMed (RMD) slumped over -5% and was the top percentage loser on the S&P 500 after Wolfe Research downgraded the stock to Underperform from Peer Perform with a price target of $180. Also, chip stocks lost ground, with Intel (INTC) sliding more than -3% to lead losers in the Dow and Nasdaq 100 and Nvidia (NVDA) falling nearly -2%. On the bullish side, U.S. Steel (X) advanced over +1% after a U.S. security panel granted Nippon Steel permission to refile its plans to acquire the company for $14.1 billion. In addition, Intuitive Machines (LUNR) surged more than +38% after announcing that it was awarded a NASA contract worth up to $4.82 billion for providing communication and navigation services for near-space missions.
Economic data released on Wednesday showed that U.S. building permits, a proxy for future construction, rose +4.9% m/m to a 5-month high of 1.475M in August, stronger than expectations of 1.410M. Also, U.S. August housing starts rose +9.6% m/m to a 4-month high of 1.356M, stronger than expectations of 1.310M.
Meanwhile, U.S. rate futures have priced in a 62.9% chance of a 25 basis point rate cut and a 37.1% chance of a 50 basis point rate cut at the next central bank meeting in November.
On the earnings front, notable companies like FedEx (FDX), Lennar (LEN), and Darden Restaurants (DRI) are slated to release their quarterly results today.
Today, all eyes are focused on the U.S. Philadelphia Fed manufacturing index, set to be released in a couple of hours. Economists, on average, forecast that the September Philadelphia Fed manufacturing index will come in at -0.8, compared to last month’s value of -7.0.
Also, investors will focus on U.S. Initial Jobless Claims data. Economists predict this figure will hold steady at 230K, consistent with last week’s number.
U.S. Existing Home Sales data will be released today. Economists foresee this figure to stand at 3.92M in August, compared to 3.95M in July.
The U.S. Conference Board Leading Index will be reported today as well. Economists expect the August figure to be -0.3% m/m, compared to the previous number of -0.6% m/m.
In the bond market, the yield on the benchmark 10-year U.S. Treasury note is at 3.707%, up +0.38%.
The Euro Stoxx 50 futures are up +1.31% this morning as investors digested the Fed’s first rate cut in four years and looked ahead to the Bank of England’s interest rate decision. Mining stocks led the gains on Thursday. Data from the European Central Bank released Thursday revealed that the Eurozone’s current account surplus narrowed in July due to a smaller trade surplus and a decline in primary income. Meanwhile, investor focus is now shifting to the Bank of England’s monetary policy decision due later in the session, with the central bank widely anticipated to keep rates unchanged. In corporate news, Next Plc (NXT.LN) gained about +2% after the British clothing retailer announced it is on track to achieve an annual profit of nearly 1 billion pounds.
Eurozone’s Current Account data was released today.
Eurozone July Current Account came in at 39.6B euros, weaker than expectations of 40.3B euros.
Asian stock markets today closed in the green. China’s Shanghai Composite Index (SHCOMP) closed up +0.69%, and Japan’s Nikkei 225 Stock Index (NIK) closed up +2.13%.
China’s Shanghai Composite Index closed higher today, reversing earlier losses amid optimism that an aggressive U.S. rate cut could give Chinese authorities more leeway to ease policy further to bolster the economy. Software and property stocks led the gains on Thursday. Still, a bleak economic outlook and the absence of robust policy support measures in the country kept sentiment subdued. According to analysts and policy advisers, Chinese policymakers are expected to intensify efforts to help the economy achieve its increasingly challenging growth target for 2024, focusing more sharply on stimulating demand to counter persistent deflationary pressures. Meanwhile, just hours after the Fed’s meeting, the Hong Kong Monetary Authority reduced the city’s base rate by 50 basis points to 5.25%. The HKMA follows the Fed’s monetary policy to maintain the Hong Kong dollar’s fixed exchange rate with the U.S. dollar. In other news, Chinese Commerce Minister Wang Wentao stated in Brussels on Wednesday that China will persist in negotiating “until the last minute” on the European Union’s electric vehicle probe. In corporate news, Hongrun Construction Group rose over +3% after securing a 242 million yuan wharf construction project from Hengli Shipbuilding. Investors are now shifting their focus to China’s loan prime rate decision on Friday.
Japan’s Nikkei 225 Stock Index closed sharply higher today, climbing above the 37,000 level for the first time since September 5th. Export-oriented stocks led the gains on Thursday as the yen weakened against the dollar, driven by expectations that the Fed might opt for smaller rate cuts ahead. A softer yen enhances the prospects for Japan’s export-driven industries and encourages investors to pursue higher-yielding assets. Technology stocks also gained ground. Meanwhile, market participants are now turning their attention to the Bank of Japan’s policy decision on Friday, where it is expected to keep its benchmark rate unchanged but hint at further rate hikes. Japanese consumer inflation data, set for release on Friday, will also be closely watched by investors. In corporate news, Ichiyoshi Securities gained over +1% after announcing a provisional semi-annual dividend of 17 yen per share for the fiscal year ending March 31st, 2025. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed down -5.20% to 25.73.
Pre-Market U.S. Stock Movers
Steelcase (SCS) plunged over -9% in pre-market trading after the company reported weaker-than-expected Q2 revenue and provided below-consensus Q3 revenue guidance.
Progyny (PGNY) plummeted more than -22% in pre-market trading after disclosing the loss of a “significant client.”
Five Below (FIVE) fell about -1% in pre-market trading after JPMorgan downgraded the stock to Underweight from Neutral.
Abbott Laboratories (ABT) gained nearly +1% in pre-market trading after Piper Sandler initiated coverage of the stock with an Overweight rating and a $131 price target.
DoorDash (DASH) climbed more than +4% in pre-market trading after BTIG upgraded the stock to Buy from Neutral with a $155 price target.
You can see more pre-market stock movers here
Today’s U.S. Earnings Spotlight: Thursday - September 19th
FedEx (FDX), Lennar (LEN), Darden Restaurants (DRI), FactSet Research (FDS), MillerKnoll (MLKN), Endava (DAVA), Cracker Barrel Old (CBRL), Research Solutions (RSSS).
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