Markets drifted lower after Powell sets the stage for slower rate cuts

Dow finished 17, decliners over advancers 4-3 & NAZ crawled up 69.  The MLP index was even in the 284s & the REIT index was up 1+ to the 435s.  Junk bond funds were little changed & Treasuries had more selling which brought higher yields.  Oil inched up pennies in the 68s & gold pulled back 13 to 2654 on profit taking (more on both below).

Dow Jones Industrials 

Federal Reserve Chair Jerome Powell said that the recent ½ percentage point interest rate cut shouldn't be interpreted as a sign that future moves will be as aggressive.  Instead, the central bank chief asserted during a speech, he & his colleagues will seek to balance bringing down inflation with supporting the labor market & let the data guide future moves.  “Looking forward, if the economy evolves broadly as expected, policy will move over time toward a more neutral stance. But we are not on any preset course,” he added.  “The risks are two-sided, and we will continue to make our decisions meeting by meeting.”  Powell did indicate that if the economic data remains consistent, there are likely 2 more rate cuts coming this year but in smaller, ¼ percentage point, increments.  “This is not a committee that feels like it’s in a hurry to cut rates quickly,” he said following his speech.  “If the economy performs as expected, that would mean to more rate cuts this year, a total of 50 [basis points] more.”  The remarks come less than 2 weeks after the rate-setting Federal Open Market Committee approved the ½ percentage point,50 basis points, reduction in the Fed's key overnight borrowing rate & a basis point equals 0.01%.  Though markets had been largely expecting the move, it was unusual in that the Fed historically has only moved in such large increments during events such as the Covid pandemic in 2020 & the global financial crisis in 2008.  The likelihood of another 50 basis points in cuts would be consistent with estimates provided in the FOMC’s “dot plot” indicating individual officials’ assessments of where rates are headed.  Addressing the decision, Powell said it reflected policymakers' belief that it was time for a recalibration of policy that better reflected current conditions.  Beginning in Mar 2022, the Fed began fighting surging inflation; policymakers of late have shifted their attention to a labor market that Powell characterized as “solid” though it has “clearly cooled over the last year.”  “That decision reflects our growing confidence that, with an appropriate recalibration of our policy stance, strength in the labor market can be maintained in an environment of moderate economic growth and inflation moving sustainably down to our objective,” Powell said.  “We do not believe that we need to see further cooling in labor market conditions to achieve 2 percent inflation,” Powell continued.  Futures market pricing is indicating that the Fed is more likely to move cautiously at its Nov 6-7 meeting & approve a ¼-point reduction.  However, traders see the Dec move as a more aggressive ½-point cut.  For his part, Powell expressed confidence in economic strength & sees inflation continuing to cool.

Powell indicates further rate cuts, but insists the Fed is ‘not on any preset course’

Ford (F) is aiming to boost sales of its electric vehicles by addressing potential customer concerns thru a new program that includes free home-charging installation & other benefits.  The “Ford Power Promise” program begins tomorrow for customers who purchase or lease a new Ford EV such as the F-150 Lightning pickup truck or Mustang Mach-E crossover.  Part of the goal is to relieve financial burdens of EV ownership such as the need for a home charger.  The program also seeks to educate new EV owners about the transition from traditional gas vehicles.  “Absolutely, we’re trying to grow our business but the best way we can grow our business is to serve our customers well,” Marin Gjaja, COO for Ford's Model e EV business said.  “Filling up at home is really key, but so is confidence in the durability and life of the battery.”  The program launches as EV sales grow at a slower rate than many previously expected.  Early adopters fled to the vehicles, but automakers have experienced problems expanding sales to mass market buyers due to costs, charging infrastructure & other hurdles.  Ford's program aims to address many of those concerns.  It was conceived to address what Ford is calling “change anxiety,” a play on the common industry concept of “range anxiety,” which refers to the fear of an electric vehicle losing battery power between charging stations.  “This is something we think is great for our customer, but we also think the way it’s set up, it’ll provide education for shoppers and intenders as well,” Gjaja said.  “We’re trying to get people off the fence.”  Ford stock fell 22¢.

Ford aims to boost EV sales, address owner concerns with new benefits program

Google (GOOGL) announced it is investing 36B Thai baht ($1B), into Thailand for the creation of a new data center & expansion of the country's cloud infrastructure.  The move marks a ramp-up of GOOGL's expansion in Asia, putting artificial intelligence at the heart of its international push at a time when it is facing intense competition.  The investment would see the company create its first data center in Thailand,.  Data centers are the backbone of today's modern digital economy, fueling the rise of cloud computing technology that enables access to storage, compute & analytics services via the internet.  GOOGL said its debut Thai data center will be located in Chonburi, an eastern province of Thailand & will “help support the growing demand for Google Cloud and AI innovations, as well as popular Google services such as Google Search, Google Maps and Google Workspace” in Thailand, Jackie Wang, GOOGL's Thailand country lead, said.  Beyond developing infrastructure, the $1B investment from GOOGL into Thailand is “also about unlocking new opportunities for businesses, educators and all Thais,” Wang added.  “As AI transforms industries, it is more important than ever to educate and upskill Thais to use this technology,” she continued.  The stock rose 1.90.

Google to invest $1 billion in Thailand to build data center, accelerate AI tech

Gold eased, taking a breather after a historic rally driven by US monetary easing & heightened Middle East tensions, which put it on course for its best qtr since 2020.  Spot gold was down 0.9% at $2634 & US gold futures settled 0.3% lower at $2659.  Gold has risen over 13% this qtr, which would be its best since early 2020, having hit an all-time high of $2685 on Thurs, fueled by the Federal Reserve's ½-percentage-point cut & flare-ups in the Middle East.  Analysts said bullion's run was reined in by profit-taking & a surge in Chinese stocks.  When risk appetite rises, investors generally shy away from safe-haven gold, although its recent gains have come alongside a rise in equities, especially after the Fed's oversized cut, as lower interest rates also burnish appeal for zero-yield bullion.  Fed Chair Jerome Powell today predicted a continued slowdown in the country's inflation, which could lead to a cut in the central bank's interest rate.  This move could eventually lift the constraints on economic activity "over time."

Record Run Steers Gold to Best Quarter in Four Years

Crude Oil slid lower at the start of the week with traders writing off recent events as no game changer for the global oil market.  Overall, expectations are that oil prices should get a lift this week, with Chinese measures boosting the demand for Oil in the region.  Yesterday, additional measures were introduced by The People's Bank of China (PBoC) & the National Financial Regulatory Administration, with lower mortgage rates set to boost the housing sector.  The Dollar Index, which tracks the performance of the Greenback against 6 other currencies, gears up for a week full of economic indicators on manufacturing & services activity & employment, ending with the monthly Nonfarm Payroll release on Fri, although geopolitical tensions are the main theme.  Tensions have been building up in Lebanon, where Israel kept bombing several parts of the country & might see Iran starting to get involved in the conflict.  Crude Oil (WTI) trades at $67.68 & Brent Crude at $71.26.

Crude Oil dips lower with traders ignoring geopolitical unrest

Powell set the stage for slower rate cuts & signaled he won't rush future rate cuts.  Investors are now bracing for the Sep jobs report, due out on Fri, which is seen as posing an important test for the recent rally.  Powell will not rush the next round of rate decisions & lowered expectations of another jumbo cut.  Dow finished up 4458 YTD with a gain of 767 in Sep which can be a turbulent month.