Markets edge higher, extending last week’s momentum

Dow went up 25, advancers over decliners 3-2 & NAZ gained 33.  The MLP index rose 3+ to the 289s & the REIT index was up 3+ to 441.  Junk bond funds were mixed & Treasuries had more selling which raised yields (more below).  Oil crawled up pennies in the low 71s & gold added 10 to 2656 for a new record.

Dow Jones Industrials

Minneapolis Federal Reserve Pres Neel Kashkari said that he expects policymakers to dial down the pace of interest rate cuts after last week's ½ percentage point reduction.  “I think after 50 basis points, we’re still in a net tight position,” Kashkari said.  “So I was comfortable taking a larger first step, and then as we go forward, I expect, on balance, we will probably take smaller steps unless the data changes materially.”  In a decision that came as at least a mild surprise, the rate-setting Federal Open Market Committee on Wed voted to reduce its benchmark overnight borrowing rate by ½ a percentage point, 50 basis points.  It was the first time the committee had cut by that much since the early days of the Covid pandemic, &, before that, the financial crisis in 2008.  While the move was unusual from a historical perspective, Kashkari said he thought it was necessary to get rates to reflect a recalibration of policy from a focus on overheating inflation to more concern about a softening labor market.  His comments indicate the central bank could move back to more traditional moves in qtr-point increments.  “Right now, we still have a strong, healthy labor market. But I want to keep it a strong, healthy labor market, and a lot of the recent inflation data is coming in looking very positive that we’re on our way back to 2%,” he said.  “So I don’t think you’re going to find anybody at the Federal Reserve who declares mission accomplished, but we are paying attention to what risks are most likely to materialize in the near future,” he added.  Speaking separately, Atlanta Fed Pres Raphael Bostic indicated he expects the Fed to move aggressively in getting back to a neutral rate.  “Progress on inflation and the cooling of the labor market have emerged much more quickly than I imagined at the beginning of the summer,” said Bostic, who votes this year on the FOMC.  “In this moment, I envision normalizing monetary policy sooner than I thought would be appropriate even a few months ago.”  Bostic also noted that Wed's cut puts the Fed in a better position on policy, in that it can slow the pace of easing if inflation starts to peak up again, or accelerate it if the labor market slows further.  Market pricing anticipates a relatively even chance of the FOMC cutting by either a ¼- or ½-percentage point at its Nov meeting, with a stronger likelihood of the larger move in Dec, for a total of 0.75 percentage point in further reductions by the end of the year, according to the CME Group's FedWatch measure.

Minneapolis Fed President Kashkari sees a slower pace of rate cuts ahead

Treasury yields were higher as investors assessed the growth outlook following the Federal Reserve’s jumbo rate cut last week.  The 10-year Treasury yield was up just over 6 basis points at 3.794% & the yield on the 2-year Treasury note was 5 basis points higher at 3.624%.  Yields & prices move in opposite directions & 1 basis point is equivalent to 0.01%.  The 10-year Treasury yield ended last week almost 8 basis points higher after the Fed lowered rates by ½ a percentage point on Wed.  Markets had raised the probability of the outsized move ahead of the meeting, but the announcement nonetheless surprised many economists.  Market participants are now questioning whether the move was good news for the US economy, or a sign it is weakening more severely than previously thought.  Fed Chair Jerome Powell last week stressed he did not see signs that the risk of an economic downturn is “elevated,” & said growth was continuing at a “solid rate.”  He added that the central bank had conducted a “recalibration” of its policy stance to help maintain growth & support the labor market.

Treasury yields climb as investors assess growth outlook

If everything had gone to plan for General Motors (GM) over the last 3 years, the Detroit automaker would be well on its way to catching Tesla (TSLA) in sales of electric vehicles.  In Oct 2021, GM CEO Mary Barra declared the automaker would “absolutely” catch up to the US EV leader by 2025.  Instead, after slower-than-anticipated EV adoption across the industry & GM-specific challenges with production, software & supply chains, the company remains well behind Elon Musk's carmaker, as well as Hyundai Motor/Kia & Ford (F).  While GM has withdrawn most of its previously announced electric vehicle targets, the automaker believes its EV sales momentum is finally building thanks to an expanding lineup of all-electric vehicles – spanning a price range of roughly $35K to more than $300K.  “We are definitely outstripping the industry in terms of growth, in terms of EVs,” Rory Harvey, GM pres of global markets, including North America said.  “We have the most comprehensive EV lineup out of any manufacturer in the industry, in the U.S., at the moment.”  EV reports of quarterly sales, show a notable increase for GM thru Aug.  GM sold nearly 21K EVs in the US in Jul & Aug – almost matching its full 2nd-qtr EV sales.   GM's EV sales thru Aug were up about 70% compared with a year earlier.  “It’s a step change in terms of our EV performance,” Harvey said.  Those 2 back-to-back record months for GM's EVs have it within striking distance, about 2K units, of Ford thru Aug.  It still remained more than 20K units shy of Hyundai/Kia EV sales thru last month.  Both Ford & Hyundai/Kia report sales monthly.  The legacy automakers are still fighting for a distant 2nd behind TSLA, which Motor Intelligence estimates to have sold more than 164K EVs during the 2nd qtr, roughly double the sales of GM, Hyundai/Kia & Ford combined during that time.  Harvey said GM expects to overtake its competitors in EV sales, but the automaker is forecasting a strong finish to the end of the year.  “We have momentum on our side,” Harvey continued.  “We anticipate quarter four will be strong in terms of EV adoption. So, we’re looking forward to that close, and looking forward to taking a disproportionate share of the upside.”  GM stock fell 1.56, Ford stock fell 11¢ & TSLA stock rose 10.52 (4%).

GM's EV sales momentum is finally building as new vehicle lineup fills out

Stocks ease higher as investors look ahead to Federal Reserve speakers & a key inflation reading for clues to the odds of another big rate cut.  The market is struggling with concerns about the health of the US economy, which have persisted after the Fed's bold pivot to cut interest rates last week.  The big question now is whether upcoming data releases this week will support Fed Chair Jerome Powell's testimony that the economy remains strong.

Markets pause as euphoria fades after recent strength

Dow was up 38 in choppy trading, decliners over advancers 2-1 & NAZ crawled fell 61.  The MLP index fell 1+ to the 285s & the REIT index lost 1+ to the 437s.  Junk bond funds continued to fluctuate & Treasuries ended with a little buying which brought slightly lower yields.  Oil was pennies lower in the high 71s & gold soared 29 to 2644, for another record.

Dow Jones Industrials 

Federal Reserve Governor Christopher Waller said he supported a ½ percentage point rate cut at this week's meeting because inflation is falling even faster than he had expected.  Citing recent data on consumer & producer prices, Waller said that the data is showing core inflation, excluding food & energy, in the Fed's preferred measure is running below 1.8% over the past 4 months.  The Fed targets annual inflation at 2%.  “That is what put me back a bit to say, wow, inflation is softening much faster than I thought it was going to, and that is what put me over the edge to say, look, I think 50 [basis points] is the right thing to do,” Waller added.  Both the consumer & producer price indices showed increases of 0.2% for the month & on a 12-month basis, the CPI ran at a 2.5% rate.  However, Waller said the more recent data has shown an even stronger trend lower, thus giving the Fed space to ease more as it shifts its focus to supporting the softening labor market.  A week before the Fed meeting, markets were overwhelmingly pricing in a 25 basis point cut.  A basis point equals 0.01%.  “The point is, we do have room to move, and that is what the committee is signaling,” he said.  The Fed's action to cut by ½ a percentage point, 50 basis points, brought its key borrowing rate down to 4.75-5.00%.  Along with the decision, individual officials signaled the likelihood of another ½ point in cuts this year, followed by a full percentage point of reductions in 2025.  Fed Governor Michelle Bowman was the only Federal Open Market Committee member to vote against the reduction, instead preferring a smaller quarter percentage point cut.  She released a statement explaining her opposition, which marked the first “no” vote by a governor since 2005.  “Although it is important to recognize that there has been meaningful progress on lowering inflation, while core inflation remains around or above 2.5 percent, I see the risk that the Committee’s larger policy action could be interpreted as a premature declaration of victory on our price stability mandate,” Bowman said.  As for the future path of rates, Waller indicated there are a number of scenarios that could unfold, with each depending on how the economic data runs.

Fed Governor Waller says inflation softening faster than he expected put him in half-point-cut camp

Family offices are the most bullish they've been in years, putting their cash to work in stocks & alternatives as the Fed starts to cut interest rates, according to a new survey.  Nearly all family offices, 97%, expect positive returns this year & nearly ½ expect double-digit gains, according to Citi Private Bank's 2024 Global Family Office Survey.  “This is the most optimistic outlook we’ve seen,” said Hannes Hofmann, head of the family office group at Citi Private Bank, which has been conducting the survey for 5 years.  “What we’re clearly seeing is an increase in risk appetite.”  The survey is the latest sign that family offices, the private investment arms of wealthy families, are emerging from 2 years of hoarding cash & bracing for recession to start making more aggressive bets on market & valuation growth.  They especially like private equity.  Nearly ½, 47%, of family offices surveyed say they plan to increase their allocation to direct private equity in the next 12 months, the largest share for any investment category.  Only 11% plan to reduce their PE holdings.  Private equity funds ranked 2nd, with 41% planning to increase their allocation.  With interest rates heading down, family offices are also regaining their appetite for stocks.  More than a 3rd, 39%, of family offices plan to increase their allocation to developed-market equities, mainly the US, while only 9% plan to trim their equity exposure.  That comes after 43% of family offices increased their exposure to public stocks last year.  Public equities remain their largest holding by major asset class, with stocks making up 28% of their typical portfolio, up from 22% last year, according to the survey.   “Family offices are taking money out of cash, and they’ve put money into public equities, private equity, direct investments and also fixed income,” Hofmann said.  “But primarily it’s going into risk-on investing. That is a very significant development.”

Family offices are the most bullish they’ve been in years, survey says

Ford (F) is recalling about 144K of its Maverick pickup trucks over concerns that the rearview camera display could show a frozen image while backing up.  The recalled 2022-2024 model year Maverick trucks have "Connected Touch Radios," according to a Sep 13 recall report submitted to the National Highway Traffic Safety Administration (NHTSA).  In the report, Ford said a frozen rearview camera display image could lead to a "false representation of where the vehicle is relative to its surroundings, increasing the risk of a crash."  The automaker linked the potential issue to "improper memory handling" within the Connected Touch Radio software that has since been resolved in the production process.  The recalled vehicles were built between Feb 2021 & late Nov of last year.  "Our goal is to prevent quality issues from happening in the first place.  When they do occur, our focus is on responding quickly with a recall or service action to prevent our customers from experiencing issues with the least inconvenience possible.  We are proud that our launch quality has reached best-in-class levels, and our long-term quality is showing improvement,"  Ford said.  "Mobile service and pickup and delivery will be available to customers at participating dealerships for this recall," Ford added.  The automaker will inform owners of the recalled vehicles by mail at the end of the month & complete the notification process by Oct 4.  Dealers have already been told about the issue.  Ford began selling Maverick pickup trucks in 2021.  The newest edition of the vehicle is hitting the market later this year.  Ford stock fell 7¢.

Ford recalls 144,500 Maverick trucks due to rearview camera display issue

Gold soared above the $2600 level for the first time, extending a rally boosted by bets for further US interest rate cuts & rising tensions in the Middle East.  Spot gold was up 1.3% at $2620 per ounce, while US gold futures settled 1.2% higher to $2646.  Bullion's latest rally got a fillip after the Federal Reserve initiated an aggressive easing cycle on Wed with a ½-percentage-point reduction, adding to the appeal for gold, which pays no interest.  Prices of the safe-haven asset have climbed 27% in 2024, their biggest annual rise since 2010, as investors also sought to hedge uncertainties spurred by prolonged conflicts in the Middle East & elsewhere.  However, the record rally could be poised for a correction, analysts say.

Gold Breaks $2,600 Barrier as Fed Cut Bets Prolong Historic Run

Oil prices, which eased slightly, were on track to end higher for a 2nd straight week following a large cut in US interest rates & declining global stockpiles.  Brent futures, which were trading 12¢ lower at $73.76 a barrel & gained 4.3% this week & US WTI crude futures, which were down 15¢ at $71.80 a barrel, registered weekly gains of 4.8%.  The benchmarks have been recovering after they fell to near 3 year-lows on Sep 10 & have registered gains in 5 of the 7 sessions since then.  Prices pared some gains today, after rising more than 1% yesterday following the US central bank's decision to cut interest rates by ½ a percentage point on Wed.  Interest rate cuts typically boost economic activity & energy demand, but some also see it as a sign of a weak US labor market.

Oil prices end week higher after US rate cut

The roaring rally is sputtering amid reminders that risks to growth could still lie ahead.  Investors are wondering whether the Fed has fallen behind in keeping the economy on track for a soft landing.  Traders are also pricing in deeper cuts this year than Fed officials' dot plot projects show.  Dow rose 670 this week.

Markets slip as Fed cheer tapers off

Dow pulled back 111, decliners over advancers 5-2 & NAZ was off 134.  The MLP index was even near 286 & the REIT index slid 1+ to the 436s.  Junk bond funds were mixed & Treasuries saw more selling which raised yields (more below).  Oil crawled higher in the 72s & gold jumped 24 to 2639 for another record.

Dow Jones Industrials

A new agreement between Microsoft (MSFT), a Dow stock, & Constellation Energy to provide power to the tech giant's data centers for artificial intelligence is paving the way for the restart of a nuclear reactor on Pennsylvania's Three Mile Island, the site of a 1979 partial meltdown.  The Baltimore-based Constellation announced that the 20-year deal it has struck with MSFT will create the "Crane Clean Energy Center & restart of Three Mile Island Unit 1, which operated at industry-leading levels of safety & reliability for decades before being shut down for economic reasons exactly 5 years ago today."  "Under the agreement, Microsoft will purchase energy from the renewed plant as part of its goal to help match the power its data centers... use with carbon-free energy," Constellation said.  Three Mile Island, located in Londonderry Township, just south of Pennsylvania's capital of Harrisburg, is the site of a partial meltdown of its Unit 2 reactor in 1979, which prompted mass evacuations.  "This was the most serious accident in U.S. commercial nuclear power plant operating history, although its small radioactive releases had no detectable health effects on plant workers or the public," the US Nuclear Regulatory Commission says.  Constellation is now hoping to get the Crane Clean Energy Center at Unit 1 online by 2028 & secure a license that will allow it to extend plant operations until at least 2054.  "The Unit 1 reactor is located adjacent to TMI Unit 2, which shut down in 1979 and is in the process of being decommissioned by its owner, Energy Solutions. TMI Unit 1 is a fully independent facility, and its long-term operation was not impacted by the Unit 2 accident," the company says.  Constellation cited a study commissioned by the Pennsylvania Building & Construction Trades Council that found that the new Crane Clean Energy Center will create 3400 jobs, add more than 800 megawatts of carbon-free electricity to the grid & bolster Pennsylvania's GDP by $16B.  "This agreement is a major milestone in Microsoft's efforts to help decarbonize the grid in support of our commitment to become carbon negative," Bobby Hollis, MSFT's VP of energy, said.  MSFT stock fell 2.

Microsoft deal would reopen Pennsylvania nuclear plant, site of 1979 partial meltdown, to power AI

Nike (NKE), a Dow stock, announced that its CEO, John Donahoe, is stepping down & company veteran Elliott Hill is coming out of retirement to take the helm of the sneaker giant.  Donahoe, who has been its CEO since Jan 2020, will retire from his position on Oct 13 & Hill is slated to take over on the following day.  Donahoe will stay on as an advisor thru the end of Jan.  “I am excited to welcome Elliott back to Nike. Given our needs for the future, the past performance of the business, and after conducting a thoughtful succession process, the Board concluded it was clear Elliott’s global expertise, leadership style, and deep understanding of our industry and partners, paired with his passion for sport, our brands, products, consumers, athletes, and employees, make him the right person to lead Nike’s next stage of growth,” said Mark Parker, NKE's exec chair.  NKE is in the midst of a broader restructuring after it shifted its strategy to sell directly to consumers.  Critics say in the process of building out sales at its own stores and website, it lost sight of innovation & failed to churn out the types of groundbreaking sneakers the company was known for.  In late Jun when it reported fiscal 4th-qtr results, NKE warned that it expected sales to drop 10% during its current qtr, citing soft demand in China & “uneven” consumer trends across the globe.  The outlook was far worse than the 3.2% decline that had been expected.  Following the rough report, NKE had its worst trading day in history & some analysts speculated that Donahoe would soon be pushed out in favor of a new CEO.  At the time, NKE co-founder Phil Knight said the company was standing by Donahoe's side & the exec had his “unwavering confidence and full support.”  NKE stock rose 5.05.

Nike CEO John Donahoe is out, replaced by company veteran Elliott Hill

Treasury bond yields were lower following the release of lower-than-expected jobless claims in the wake of the Federal Reserve's jumbo rate cut.  The 10-year Treasury yield was marginally lower at 3.738% & the 2-year Treasury note yield was up 1 basis point at 3.614%.  Yields & prices move in opposite directions & 1 basis point is equivalent to 0.01%.  Initial jobless claims, which came in at 219K last for the week, were lower than expected.  The forecast had expected 230K claims for the period.  The Federal Reserve's decision on Wed to slash interest rates by 50 basis points comes amid a week full of central bank rate decisions.  The Bank of England announced yesterday it would hold interest rates steady after cutting rates for the first time in more than 4 years in Aug.  Meanwhile, in Asia, the Bank of Japan kept its benchmark interest rate steady at around 0.25%, the highest rate since 2008 & China surprised markets by leaving its benchmark lending rates unchanged at the monthly fixing.  Market watchers had expected a trim from the People's Bank of China.

Treasury yields move lower as investors digest unemployment data after Fed cut

Stocks started lower after recent gains.  Investors are digesting Fed comments & rate-cut euphoria has faded.  The roaring rally is sputtering amid reminders that risks to growth could still lie ahead.  Traders are still wondering whether the Fed has fallen behind in keeping the economy on track for a soft landing.  Meanwhile demand for gold remains strong.

Markets surge after the big Fed rate cut brings optimism to investors

Dow roared ahead 522 to rise above 42K, advancers over decliners 4-1 & NAZ advanced 440.  The MLP index remained down 1 to the 286s & the REIT index held steady in the 439s.  Junk bond funds fluctuated & Treasuries continued to be sold, lifting yields.  Oil was up 1 to the high 71s & gold jumped 16 to 2613 (more on both below).

Dow Jones Industrials 

Darden Restaurants (DRI) reported weaker-than-expected quarterly earnings & revenue as sales weakened at Olive Garden & its fine dining restaurants.  “While we fell short of our expectations for the first quarter, I firmly believe in the strength of our business,” CEO Rick Cardenas said.  “I am confident in the actions all our brand teams are taking to address their guests’ needs, which do not compromise the long-term health of our business for short-term benefits.”  The company shared a number of initiatives that it's implementing to boost sales, including its first partnership with Uber, ending its resistance to 3rd-party delivery.  DRI reported fiscal first-qtr EPS of $1.74, up from of $1.59, a year earlier.  Excluding costs related to its purchase of Tex-Mex chain Chuy's, the restaurant company earned $1.75 per share.  Net sales rose 1% to $2.76B, but same-store sales declined 1.1% in the qtr.  Traffic to its restaurants fell sharply in Jul but then improved, according to CFO Raj Vennam.  Execs at other restaurant companies have also said that traffic struggled this summer, chalking it up to increased travel or diners growing even more cautious.  Olive Garden’s same-store sales shrank 2.9% in the qtr.  The chain is reviving its Never Ending Pasta Bowl later this month in the hopes of bringing back customers.  Olive Garden is running the promotion about a month earlier than usual & extending it for 3 weeks longer than last year.  Despite the gloomy qtr, DRI reiterated its full-year outlook.  For fiscal 2025, the company is forecasting EPS from continuing operations of $9.40 - $9.60 & net sales of $11.8 - $11.9B.  To date, DRI's fiscal 2nd-qtr same-store sales are growing, a promising sign that this summer's slump could just be a blip, Cardenas said.  The stock gained 13.10 (8%).

Darden Restaurants earnings disappoint as Olive Garden, fine dining sales struggle

Mortgage rates declined again this week, sparking a subtle boost in demand for purchase & refinance applications.  Still, many buyers continue to hold off on making a move while waiting for steeper cuts, as fresh data shows existing home sales eased in Aug from the month before.  Freddie Mac's latest Primary Mortgage Market Survey showed that the average rate on the benchmark 30-year fixed mortgage dropped to 6.09%, down from the 6.20% reading of the past 2 weeks & the average rate on a 30-year loan was 7.19% a year ago.  The latest drop in rates comes after the Federal Reserve cut the federal funds rate by 50 basis points, but the mortgage rate declines were due to market expectations of future cuts.  "Mortgage rates continued declining towards the six percent mark, reviving purchase and refinance demand for many consumers," said Sam Khater, Freddie Mac's chief economist.  "While mortgage rates do not directly follow moves by the Federal Reserve, this first cut in over four years will have an impact on the housing market," Khater continued.  "Declining mortgage rates over the last several weeks indicate this cut was mostly baked in, but we expect rates to fall further, sparking more housing activity."  Many would-be buyers & sellers are holding out to see if rates fall further.  Currently, about 80% of mortgage holders have a rate below 5%, according to a Zillow survey.  The average rate on the 15-year fixed mortgage declined to 5.15% from 5.27% last week.  One year ago, the rate on the 15-year fixed note averaged 6.54%

Mortgage rates fall again, but home sales still lag

Federal Reserve Chair Jerome Powell has unveiled his latest buzzword to describe monetary policy, with a “recalibration” of policy at a pivotal moment for the central bank.  Following yesterday's open market committee meeting, Powell used variations of the word no fewer than 8 times as he sought to explain why the Fed took the unusual step of a ½ percentage point rate cut absent an obvious economic weakening.  “This recalibration of our policy stance will help maintain the strength of the economy and the labor market, and will continue to enable further progress on inflation as we begin the process of moving forward a more neutral stance,” Powell said.  Financial markets weren't quite sure what to make of the chair's messaging in the meeting's immediate aftermath.  However, asset prices soared today as investors took Powell at his word that the unusually outsized move wasn't in response to a substantial slowing of the economy.  Rather, it was an opportunity to “recalibrate” Fed policy away from a rigid focus on inflation to a broader effort to make sure a recent weakening of the labor market didn't get out of hand.  Several of his previous efforts to provide buzzy descriptions of Fed policy or its views on the economy haven't worked out so well. In 2018, his characterizations of the efforts to reduce its bond holdings as being on “autopilot,” as well as his assessment that a string of rate hikes the same year had brought the Fed “a long way” from a neutral interest rate spurred blowback from markets.  More famously, his insistence that an inflation surge in 2021 would prove “transitory” ended up causing the Fed to be slow-footed on policy to the point where it had to enact a series of 3-qtr percentage point rate increases to pull down inflation.  But markets expressed confidence in Powell's latest assessment, despite this track record & some signs of cracks in the economy.

The Fed has set out on a ‘recalibration’ of policy. Here’s what Powell’s new buzzword means

Gold prices rose over 1% as the Federal Reserve launched its monetary easing cycle with a ½ percentage point move, boosting bullion to an all-time high & just pennies shy of the key $2600 ceiling in the previous session.  Spot gold rose 1.2% to $2590 per ounce & US gold futures settled 0.6% higher at $2614.  Spot prices scaled a record high of $2599 yesterday after the Fed lowered the benchmark policy rate by 50 basis points to 4.75% - 5.00%.  Fed policymakers also projected the benchmark interest rate would fall by another ½ of a percentage point by the end of this year, a full percentage point next year & ½ of a percentage point in 2026.  The market is factoring in bigger & more rate cuts because of fiscal & trade deficits, & that's going to further weaken the overall value of the $.  Bullion is considered a safe asset during political & economic uncertainty.  It also tends to thrive in a low-rate environment.

Gold Gains Over 1% as Fed Begins Deeper Rate-Cut Cycle

Oil advanced as a risk-on tone swept across wider financial markets following the steep interest-rate cut by the Federal Reserve.  Brent futures climbed toward $75 a barrel after closing little changed on yesterday, while West Texas Intermediate was above $71.  European stock futures gained alongside Asian equities as the Fed's move reinforced expectations that the US economy will avoid a downturn.  Brent is still on track for a quarterly loss on concerns over China's economic slowdown & ample supply.  A measure of US gasoline demand fell further below 9M barrels while jet fuel consumption ebbed for a 3rd straight week, according to gov data, adding to bearish headwinds.  Shrinking US inventories could underpin further price gains.  Crude stockpiles at the key storage hub at Cushing, Oklahoma, are significantly lower than the 5-year seasonal average & close to what's considered tank bottom levels, according to EIA data.  Brent for Nov rose 1.2% to $74.54 a barrel & WTI for Oct climbed 1% to $71.65 a barrel.

Oil Gains Toward $75 With Markets Rallying After Fed Cuts Rates

Stocks soared amid growing optimism that the Federal Reserve's jumbo interest rate cut will deliver a soft landing for the US economy.  Meanwhile gold is over 2600.  Risk averse (gold) & risk-on (stocks) investors are both embracing their investments at the same time.  This relationship has lasted for many months.

Markets rally a day after big Fed rate cut

Dow went up 387, advancers over decliners over 4-1 & NAZ jumped 452.  The MLP index was steady in the 287s & the REIT index fell 2 to the 437s on high interest rates.  Junk bond funds inched higher & Treasuries saw more selling which raised yields (more below).  Oil rose in the 71s (more below) & gold gained 8 to 2607 (in record territory).

Dow Jones Industrials

Treasury yields were little changed as investors digested the Federal Reserve's decision to cut interest rates by 50 basis points yesterday.  The yield on the 10-year Treasury was up more than 7 basis points at 3.76% & the 2-year Treasury yield was last nearly 4 basis points higher at 3.64%.  Yields & prices have an inverted relationship & 1 basis point equals 0.01%. The Federal Reserve on Wednesday delivered a 50 basis point interest rate reduction, bringing the federal funds rate to 4.75%-5.00%.  The size of the cut was in line with market expectations, which had shifted from expecting a 25 basis point cut to a bigger 50 basis point one in recent days.  It's the first rate cut from the Fed since it began hiking in Mar 2022, marking a shift in its monetary policy approach since then.  “The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance,” the Fed's post-meeting statement said.  Weekly jobless claims fell by 12K to 219K, which was far below estimates, according to labor market data.  The better-than-expected figure helped reassure investors the economy is headed toward a soft landing.  The Federal Open Market Committee also indicated through its “dot plot” that it is anticipating another 50 basis points worth of cuts by the end of 2024.  It also suggested another full percentage point in cuts by the end of 2025, & a ½ point in 2026.  Elsewhere, the Bank of England announced it would hold interest rates steady after cutting rates for the first time in over 4 years in Aug.  The central bank cited “elevated” services inflation & a need for gradual easing of monetary policy.

10-year Treasury yield jumps as investors bet there’s no recession ahead

Sales of previously owned homes fell 2.5% in Aug from Jul, to a seasonally adjusted annualized rate of 3.86M units, according to the National Association of Realtors (NAR).  That's slightly lower than expected.  Sales were 4.2% lower than Aug 2023 & marks 3 straight months of sales below the 4M mark, annualized.  This count is based on closings — contracts that were likely signed in late Jun & Jul, when mortgage rates started coming down but were not as low as they are today.  The average rate on the popular 30-year fixed loan was slightly over 7% in mid-Jun & then fell steadily to 6.7% by the end of Jul, according to Mortgage News Daily.  “Home sales were disappointing again in August, but the recent development of lower mortgage rates coupled with increasing inventory is a powerful combination that will provide the environment for sales to move higher in future months,” said Lawrence Yun, NAR's chief economist.  “The home-buying process, from the initial search to getting the house keys, typically takes several months.”  The inventory of homes for sale is improving slightly.  There were 1.35M units for sale at the end of Aug, up 0.7% from Jul & 22.7% year over year.  It is still, however, just a 4.2-month supply.  A 6-month supply is considered balanced between buyer & seller.  “The rise in inventory — and, more technically, the accompanying months’ supply — implies home buyers are in a much-improved position to find the right home and at more favorable prices,” Yun added.  “However, in areas where supply remains limited, like many markets in the Northeast, sellers still appear to hold the upper hand.”  Tight supply is keeping the pressure on prices.  The median price of an existing home sold in Aug was $416K, up 3.1% from the same month in 2023, the highest price ever for Aug.  Since it's a median, though, part of that gain is skewed toward what was selling in Aug.  Sales were up significantly for homes priced above $750K, but down for anything priced below $500K.  Mortgage rates continued to fall in Aug & Sep, with the 30-year fixed now sitting at 6.15%, the lowest in roughly 2 years.

August home sales drop more than expected, as prices set a new record

US crude oil rose nearly 1%, after the Federal Reserve slashed interest rates for the first time in more than 4 years & as tensions in the Middle East continued to escalate.  The Fed surprised the market with a bigger-than-expected cut of a ½ percentage point.  Oil prices, however, closed slightly lower as rate cuts had largely already been priced in.  West Texas Intermediate Oct contract was $71.54 per barrel, up 63¢ (0.9%) & YTD US crude oil is little changed.  Brent Nov contractwas $74.37 per barrel, up 72¢ (1%) & YTD, the global benchmark is down 3.5%.  Crude futures are on the rebound again as tensions soar between Israel & the Iranian-backed militia group Hezbollah in Lebanon.  Prices are also finding support after US oil stockpiles fell by 1.6M barrels last week.  Pagers & walkie-talkies used by Hezbollah exploded this week, killing dozens & wounding thousands across Lebanon.  US officials said that Israel was behind the pager attack.  Israeli Defense Minister Yoav Gallant said that his country's focus is shifting from Gaza to the northern border with Lebanon, where some 60K Israelis have been evacuated, as a “new phase” of the war begins.  Oil market analysts have warned for months that an all-out war between Israel & Hezbollah, which until now have traded rocket fire, could force OPEC member Iran to directly intervene, raising the risk of disruptions to Middle East crude oil supplies.

U.S. crude oil rises nearly 1%, trades above $71 per barrel after Fed rate cut

The stock market soared amid growing optimism that the Federal Reserve's jumbo interest-rate cut will deliver a soft landing for the US economy.  Investors were encouraged after taking a closer look at the Fed's decision to kick-start its new rate cycle with 50 basis point cut.  Initially the gauges swayed around before closing lower.  After absorbing Chair Jerome Powell's message that a deep cut in a relatively strong economy will ultimately fend off the risk of recession they viewed it as a sign of faith, not panic, about current conditions.

Markets were lower in volatile trading following the Fed's rate cut

Dow finished down 103 (with selling in the last hour), advancers over decliners about 3-1 & NAZ was off 54.  The MLP index stayed in the 288s & the REIT index was flattish at 440.  Junk bond funds were mixed & Treasuries saw a little selling which lifted yields modestly.  Oil slid fractionally lower but held above 70 & gold jumped 17 to 2606 (more on both below).

Dow Jones Industrials 

The Federal Reserve enacted its first interest rate cut since the early days of the Covid pandemic, slicing ½ a percentage point off benchmark rates in an effort to head off a slowdown in the labor market.  With both the jobs picture & inflation softening, the Federal Open Market Committee (FOMC) chose to lower its key overnight borrowing rate by a ½ percentage point, 50 basis points, affirming market expectations that had recently shifted from an outlook for a cut ½ that size.  Outside of the emergency rate cuts during Covid, the last time the FOMC cut by ½ a point was in 2008 during the global financial crisis.  The decision lowers the federal funds rate to 4.75%-5.00%.  While the rate sets short-term borrowing costs for banks, it spills over into multiple consumer products such as mortgages, auto loans ½ credit cards.  In addition, the committee indicated thru its “dot plot” the equivalent of 50 more basis points cut by the end of the year, close to market pricing.  The matrix of individual officials' expectations pointed to another full percentage point in cuts by the end of 2025 & a ½-point in 2026.  In all, the dot plot shows the benchmark rate coming down about 2 percentage points beyond today's move.  “The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance,” the post-meeting statement said.  The decision to ease came “in light of progress on inflation and the balance of risks.”  The FOMC vote came by an 11-1 vote, with Governor Michelle Bowman preferring a qtr-point move.  Trading was volatile after the decision with the Dow jumping as much as 375 points, before easing somewhat as investors digested the news & what it suggests about the state of the economy.  In assessing the state of the economy, the committee judged that “job gains have slowed and the unemployment rate has moved up but remains low.”  FOMC officials raised their expected unemployment rate this year to 4.4%, from the 4% projection at the last update in Jun & lowered the inflation outlook to 2.3% from 2.6% previous.  On core inflation, the committee took down its projection to 2.6%, a 0.2 percentage point reduction from Jun.  The committee expects the long-run neutral rate to be around 2.9%, a level that has drifted higher as the Fed has struggled to get inflation down to 2%.  The decision comes despite most economic indicators looking fairly solid.  Gross domestic product has been rising steadily, & the Atlanta Fed is tracking 3% growth in the 3rd qtr based on continuing strength in consumer spending.  Moreover, the Fed chose to cut even though most gauges indicate inflation well ahead of the central bank’s 2% target.  The Fed's preferred measure shows inflation running around 2.5%, well below its peak but still higher than policymakers would like.  However, Powell & other policymakers in recent days have expressed concern about the labor market.  While layoffs have shown little sign of rebounding, hiring has slowed significantly.  The last time the monthly hiring rate was this low, 3.5% as a share of the labor force, the unemployment rate was above 6%.  At his press conference following the Jul meeting, Powell remarked that a 50 basis point cut was “not something we’re thinking about right now.”  For the moment, at least, the move helps settle a contentious debate over how forceful the Fed should have been with the initial move.

Fed slashes interest rates by a half-point, an aggressive start to its first easing campaign in four years

Boeing (BA), a Dow stock, will temporarily furlough thousands of US execs, managers & other staff, citing the ongoing machinist strike as the company races to preserve cash, CEO Kelly Ortberg told employees.  The furloughs will affect 10s of thousands of its employees.  The plan came less than a week after its more than 30K machinists in the Seattle area & Oregon overwhelmingly voted down a new labor contract & 96% voted to strike, walking off the job just after midnight on Fri.  Negotiations between the 2 sides continued this week with a mediator.  BA had offered a 25% raise & the union endorsed the tentative contract.  But some workers said that the contract offer was rejected because the raises weren't sufficient enough to match the increase in the cost of living in the Seattle area & it didn't restore their pensions.  “We will not mince words - after a full day of mediation, we are frustrated,” the union said.  Ortberg, who has been in the job for just under 6 weeks, said in a staff memo that affected employees would take 1 week of furlough every 4 weeks for the strike's duration & he & his team would take “commensurate” pay cuts during the strike.  “While this is a tough decision that impacts everybody, it is in an effort to preserve our long-term future and help us navigate through this very difficult time. We will continue to transparently communicate as this dynamic situation evolves and do all we can to limit this hardship,” Ortberg added.  The financial impact of the strike will depend how long it lasts, but it adds to pressure on BA's leaders, who are trying to move the company past safety & quality crises, including the fallout from a near-catastrophic door plug blowout in Jan & $60B in debt.  Ortberg said that “activities critical to our safety, quality, customer support and key certification programs will be prioritized and continue” including production of its 787 Dreamliners, which are made in a nonunion facility in South Carolina.  The stock fell 1.22.

Boeing starts furloughing tens of thousands of employees amid machinist strike

Rep House Speaker Mike Johnson said former Pres Trump could pay for his presidential campaign's economic proposals by rolling back corp regulation & expanding tax cuts to stimulate growth.  “You have to bring about a pro-growth economy, and you do that with a combination of aggressive use of the tax code and reduction in government regulation,” he said.  “If you get Republican leadership in the White House, the Senate and the House, unified government, we will put this thing on turbo. You will see massive regulatory reform,” he continued.  Trump has proposed making his 2017 tax cuts permanent & further lowering the corp tax rate, as well as wholly eliminating federal income taxes on worker tips, overtime pay & Social Security benefits.  An Aug study from the nonpartisan Penn Wharton Budget Model found that Trump's policy proposals could add an estimated $5.8T to the federal deficit over the next 10 years.  That figure did not include Trump's Sep 12 proposal to exempt overtime pay from federal income taxes.  If applied only to pay that is currently designated as overtime, the proposal would add an estimated $866B to the total cost of Trump's proposals over the next decade, according to an analysis from the Yale Budget Lab.  A tax exemption for all hours worked over 40 hours per week would cost an estimated $1.3T over 10 years.  Yesterday, the Rep presidential nominee also floated reestablishing the state & local tax (SALT) deduction, which he capped during his first term.  Johnson agreed with all of Trump's proposals.  Paying for them, he said, would come down to a combination of corp tax cuts, deregulation & energy policy to get “the economy humming.”  Trump, however, has repeatedly said he wants to pay for his plans with the proceeds from hardline tariffs on all imports, with an especially high rate for Chinese imports.  During his debate against VP Kamala Harris last Tues, Trump touted the “billions and billions of dollars” in revenue generated by his first-term tariffs, which nearly triggered a trade war with China.

House speaker floats deregulation, tax cuts — not tariffs — to pay for Trump plan

Gold prices rose to an all-time high after the Federal Reserve cut interest rates by 50 basis points, sending the $ lower.  Spot gold was up 0.9% at $2592 per ounce & US gold futures settled 0.2% higher at $2598.  The central bank kicked off what is expected to be a steady easing of monetary policy with ½ a percentage point cut.  Policymakers see the Fed's benchmark rate falling by another ½ of a percentage point by the end of this year & another full percentage point in 2025.  Lower interest rates decrease the opportunity cost of holding non-yielding bullion & weigh on the $, making gold cheaper for investors holding other currencies.  Following the Fed's cut, the $ fell 0.5% - to its lowest since Jul 2023 against its rivals.  Investors now look forward to comments from Chair Jerome Powell for more cues on policy path.

Gold Jumps to Record High After U.S. Fed Delivers 50 Bps Rate Cut

Oil prices closed slightly lower, snapping a 2-day winning streak even after the Federal Reserve cut interest rates for the first time in years.  The central bank slashed rates by a ½ point, a bigger move than many had expected.  Though prices clawed back losses from earlier in the session, the response in the oil market was subdued.  West Texas Intermediate Oct contract settled at $70.91 per barrel, down 28¢ (0.4%) & YTD US crude oil has fallen about 1%.  Brent Nov contract $73.65 per barrel, down 5¢ & YTD, the global benchmark has declined about 4%.  The oil market has been rattled this month by worries about a growing imbalance between supply & demand.  US crude & global benchmark Brent have fallen about 13% in the 3rd qtr.  Consumption in China is slowing as electric vehicle sales surge in the world's largest crude importer.  At the same time, OPEC+ is expected to increase production in Dec as output in the US, Canada, Brazil & Guyana remains strong.  US commercial crude stockpiles fell by 1.6M barrels last week, according to the Energy Information Administration.

Oil Prices Close Slightly Lower After Fed Cuts Interest Rates for First Time in Years

The stock market settled lower in choppy trading after the Federal Reserve cut interest rates by 0.5% in its first rate reduction since 2020.  Additionally, the Fed's latest Summary of Economic Projections (SEP) showed the majority of Fed officials expect the central bank to cut interest rates by 100 basis points in total this year.  The significant policy shift was widely expected, given growing signs that the central bank has managed to cool inflation without severe harm to the economy.  But investors were still guessing at whether hopes for a 0.5% cut would be fulfilled or if the historic pattern of 0.25% moves would repeat itself.  The BA strike will be a drag on the economy as long as it lasts.

Markets are in a holding pattern just hours before the Fed decision

Dow was off 56, advancers barely ahead of decliners & NAZ slid back 12.  The MLP index declined 1+ to the 287s & the REIT index hardly budged at 440.  Junk bond funds edged higher & Treasuries had selling which raised yields.  Oil hovered near even in the 71s & gold added 5 to 2597.

Dow Jones Industrials

For all the hype that goes into them, Federal Reserve meetings are usually pretty predictable affairs. Policymakers telegraph their intentions ahead of time, markets react, & everyone has at least a general idea of what's going to happen.  Not this time.  This week's gathering of the central bank’s Federal Open Market Committee (FOMC) carries an uncommon air of mystery.  While markets have made up their collective mind that the Fed is going to lower interest rates, there's a vigorous debate over how far policymakers will go.  Will it be the traditional qtr-percentage-point, or 25-basis-point, rate reduction, or will the Fed take an aggressive first step & go 50, or ½ a point?   Fed watchers are unsure, setting up the potential for an FOMC meeting that could be even more impactful than usual.  The meeting wraps this PM.  “I hope they cut 50 basis points, but I suspect they’ll cut 25. My hope is 50, because I think rates are just too high,” said Mark Zandi, chief economist at Moody’s Analytics.  “They have achieved their mandate for full employment and inflation back at target, and that’s not consistent with a five and a half percent-ish funds rate target. So I think they need to normalize rates quickly and have a lot of room to do so.”  Pricing in the derivatives market around what the Fed will do has been volatile.  Until late last week, traders had locked in on a 25-basis-point cut.  Then on Fri, sentiment suddenly shifted, putting a ½ point on the table.  Today traders were pricing in about a 63% chance of the bigger move, a comparatively low level of conviction against previous meetings.  1 basis point equals 0.01%.  But many on traders continued to predict the Fed's first step would be a more cautious one.  The debate inside the FOMC meeting room should be interesting, & with an unusual division among officials who generally have voted in unison.

Here’s what to expect from the Fed’s biggest interest rate call in years

Treasury yields ticked higher as all eyes were on the Federal Reserve’s interest rate decision expected for later in the day.  The yield on the 10-year Treasury was up by around 3 basis points at 3.674% & the 2-year Treasury yield was last at 3.623% after adding nearly 3 basis points.  Yields & prices move in opposite directions & 1 basis point equals 0.01%.  The focus today will be on the Federal Reserve's latest interest rate decision & guidance for the monetary policy outlook.  While a interest rate cut is all but guaranteed, traders are divided about the size of the rate reduction.  A 25-basis-point cut was widely expected until recent days when investors began pricing in a higher probability of a bigger 50-basis-point reduction.  Chances of that last stood at 61%, CME Group's FedWatch tool showed.  Investors are also hoping for hints about what Fed interest rate policy could look like for the remainder of the year & if more cuts are on the horizon.  Fed Chair Jerome Powell is set to give a post-meeting press conference that could provide fresh insights into the central bank's thinking.  The Fed's latest economic projections are also due to be released today.

Treasury yields rise as investors look to Fed rate decision

Mortgage rates came down again last week, & with the expectation that they could fall further, mortgage demand suddenly jumped, especially for refinancing.  The Federal Reserve is expected to make its first interest rate cut in 4 years, & while mortgage rates don't follow the Fed exactly, they are influenced by policy.  It is likely they will move on Fed Chair Jerome Powell's remarks following the decision.  “The most important takeaway is that lower mortgage rates are not only not remotely guaranteed by [the] Fed rate cut. They’re actually already baked in,” wrote Matthew Graham, COO at Mortgage News Daily.  “The directionality depends on the dot plot and Powell’s comments in the press conference. Things could go either way and the volatility could be significant.”  Total mortgage application volume rose 14.2% last week compared with the previous week, according to the Mortgage Bankers Association's (MBA) seasonally adjusted index.  Last week's results included an adjustment for the Labor Day holiday.  The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $766K or less decreased to 6.15% from 6.29%, with points increasing to 0.56 from 0.55, including the origination fee, for loans with a 20% down payment.  That is the lowest rate since Sep 2022 & is 116 basis points lower than it was the same week 1 year ago.  “Application activity was up significantly last week, as market expectations of a rate cut from the Fed pulled mortgage rates lower,” said Joel Kan, an MBA economist.  Applications to refinance a home loan jumped 24% from the previous week & were 127% higher than the same week 1 year ago.  Most of those applicants likely purchased their homes in the past 2 years, when rates rose sharply from the record lows seen in the first 2 years of the Covid-19 pandemic.  Even with this large increase in volume, it is coming off a very low base, as the vast majority of borrowers have loans with interest rates well below 5%.  Both conventional & gov activity climbed to the fastest pace of refinancing since 2022.  Applications for a mortgage to purchase a home increased 5% for the week but were still 0.4% lower than the same week 1 year ago.  “It is notable that conventional purchase applications increased to a pace ahead of last year, which also drove overall purchase applications very close to year-ago levels,” Kan said.  “Homebuyers are seeing improving affordability conditions, sparked by lower rates and slower home-price growth.”  

Weekly mortgage demand surges 14% higher as interest rates hit two-year low

The stock market was little changed as investors braced for the Federal Reserve's long-awaited policy decision, with the market still divided on the size of the expected rate cut.  Traders wait to find out how aggressive the Fed will be when it makes its first US interest rate cut since 2020.  The significant policy shift is widely expected, given growing signs that the central bank has managed to cool inflation without severe harm to the economy.  Safe haven gold continues to hover in record territory.

Markets were largely flat while traders wait for Fed decision

Dow finished down 15 after after rising in the AM, advancers over decliners 3-2 & NAZ edged up 35.  The MLP index was flat, staying near 289 & the REIT index fell 2 to the 441s.  Junk bond funds remained up a smidgen & Treasuries continue to see selling which raised yields.  Oil had a modest gain near 71 & gold pulled back 10 to 2598 (more on both below).

Dow Jones Industrials 

With considerable uncertainty about what the Federal Reserve will do at its meeting this week, respondents to a survey forecasting a more gradual approach to rate cuts than is currently priced into markets.  The survey shows 84% of the 27 respondents, including economists, fund managers & strategists, see the Fed cutting by a qtr percentage point, with 16% seeing a ½-point decrease.  That compares with 65% probability of a ½-point cut now priced into fed futures markets.  The differences grow over time with survey respondents forecasting a year-end funds rate of 4.6% & 3.7% by the end of 2025, compared with 4.1% & 2.8% in the futures market.  “We believe that the equivalent of eight cuts in six meetings is more than what will happen,″ John Donaldson, director of fixed income at the Haverford Trust, wrote in response to the survey.  “That forecast is more in line with a hard landing than a soft landing.”  Barry Knapp from Ironsides Macroeconomics says, “We suspect the FOMC will either under-promise or under-deliver, perhaps both.”  The survey stands on 1 side of a debate that has divided markets in the past several days over whether the Fed cuts 25 or 50 basis points, creating an unusual amount of uncertainty for a Fed that has telegraphed its moved at almost every meeting.  The major difference could be that survey respondents appear less worried about the economy overall than futures markets & more convinced the Fed has time to enact gradual rate cuts.  74% rate cut comes in time to preserve a soft landing, with just 15% saying it's too late.  Overall, the probability of a soft landing stands at 53%, about where it’s been since Mar, while the chance of a recession has ticked up to 36%, 5 points above its recent low in Jun, but well below the 50% level that prevailed for much of 2022 & 2023.  The outlook for growth remained at 2% for this year & ticked down to 1.7% for 2025, 2-tenths below the Jul survey, but still at or around economic potential & not a recession.  Not everyone believes the Fed has time.  “Powell’s legacy is dependent on him nailing a soft landing after waiting too late to raise rate in 2021,” said Diane Swonk, chief economist at KPMG US.  “The window on that occurring is narrowing.”  Neil Dutta of Renaissance Macro Research rejects the criticism that a ½-point cut would spook markets, saying there are real risks if the Fed only goes a qtr point.  Equity valuations are believed to be roughly in line for a soft landing with 50% saying they are overpriced & 47% saying they are underpriced.  But 97% say they are significantly or somewhat overpriced for a recessionary outcome.  “The economy is growing faster than expected in 2024, and the Fed has time to lower rates at a measured pace,” said Michael Englund of Action Economics.  “While there are economic risks on the horizon, the coming Fed cuts will be much closer to a ‘mid-cycle correction’ trend, a la 1995, 1997, & 2019, than to an end of cycle recessionary trend,″ wrote Guy LeBas, chief fixed income strategist, Janney Montgomery Scott.  Forecasts for the unemployment rate did tick modestly higher.  Compared with the current rate of 4.2%, unemployment is seen at 4.4% & 4.5% for this year and next, both about 2-tenths higher than the prior survey.

Fed to cut rates by a quarter point with a soft landing expected, according to CNBC Fed Survey

To cut or not to cut: that’s what the Federal Reserve will begin to debate at its highly-anticipated meeting.  However, 2 economists have sent a warning notice to the central bank, cautioning they're analyzing the wrong headline numbers.  "I think inflation is higher than what people are saying," former Federal Reserve Bank of Kansas City Pres said ahead of the meeting.  "If you use the CPI, which I think you should use, core [CPI] is still above three [percent], it's been above three for a year. So they ought to be cautious in coming down, as anxious as they are to please the markets and whomever else," he continued.  "They should be much more careful because, as someone said, reversing themselves now would be a disaster. Thank God they had to raise it later. It'd be a mess."  MacroMavens' matriarch economist & Pres Stephanie Pomboy agreed: "I think this is so important, the headline CPI numbers are sort of the ones to watch, and they're not particularly friendly for the Fed given the recent trend."  "Since Biden became president and the inflation numbers really took off in the beginning of 2021, the CPI was up 20%. Gold was up 30%," she further explained.  "Just here in 2024, the CPI is up 1.6% and gold is up 20%. So either the CPI is vastly understating inflation, or gold is telling us that there's a lot more inflation coming."  After its last policy meeting in Jul, the Fed kept its benchmark federal funds rate steady at a 23-year-high of 5.25 - 5.50% but opened the door to interest rate cuts if inflation continued to ease.  Inflation data showed that price growth slowed to 2.9% year over year in Jul & last week's release of Aug data reflected a continuation of that trend, with headline inflation at 2.5% from a year ago.  Fed Chair Jerome Powell has signaled that the Fed doesn't need to wait for inflation to reach the central bank's target rate of 2%, given the progress in slowing inflation, which peaked at 9.1% in 2022.  Markets expect the Fed to kick off a series of interest rate cuts this week that will continue in the months ahead, though there is debate over the size of the initial rate cut.  "Real rates are still restrictive. If they move a quarter point, I don't think it necessarily is in the world because there'll still be a constraint on the economy, but I think getting into this 50 basis point and 75 basis point discussion is really unwise," Hoenig added.  "And if they take that up, I think that's their mistake… if they go 25 basis points, which I still think is the most likely, he will then say: we're willing to do more if necessary."

US economists send Fed warning on price increases ahead of anticipated rate decision: ‘Be cautious’

US retail sales unexpectedly rose in Aug as a decline in receipts at auto dealerships was more than offset by strength in online purchases, suggesting that the economy remained on solid footing thru much of the 3rd qtr.  The report from the Commerce Dept also showed retail sales were a bit stronger than initially thought in Jul.  It combined with the decline in the unemployment rate last month to push against financial market expectations for a ½-percentage-point interest rate cut from the Federal Reserve tomorrow.  The central bank officials started a 2-day policy meeting.  The Atlanta Fed raised its 3rd-qtr GDP growth estimate to a 3.0% annualized rate from a 2.5% pace after the data.  The economy grew at a 3.0% pace in the 2nd qtr.  Retail sales increased 0.1% last month after an upwardly revised 1.1% surge in Jul, the Commerce Dept's Census Bureau said.  The forecast called for retail sales, which are mostly goods & are not adjusted for inflation, falling 0.2% after a previously reported 1.0% jump in Jul.  Estimates were from a 0.6% decline to a 0.6% gain.  Retail sales increased 2.1% on a year-on-year basis in Aug.  Online store sales rebounded 1.4% after falling 0.4% in Jul.  Sales at gasoline stations dropped 1.2%, reflecting lower prices at the pump.  Cheaper gasoline is likely freeing money for other spending.

US retail sales unexpectedly rise in August

Gold eased slightly today after climbing to an all-time high in the previous session as $ & Treasury yields edged higher, while traders positioned themselves for a potential US interest rate cut decision by the Federal Reserve this week.  Spot gold fell 0.2% to $2577 per ounce after scaling an all-time high of $2589 yesterday & US gold futures eased back 0.2% at $2604.  The spotlight in the financial realm is on the Fed's 2-day policy meeting that concludes tomorrow & markets are now pricing in a 65% chance of a 50-basis-point cut versus 34% a week ago, according to the CME FedWatch tool.  The financial markets have priced in a bigger chance that the Fed will move more aggressively.  This would be the Fed's first rate cut since 2020.

Gold lingers near record as dollar, yields firm ahead of Fed verdict

Oil edged higher as a widely expected interest-rate cut by the Federal Reserve this week offset concerns about the demand outlook.  Brent traded near $73 a barrel after rising by 1.6% yesterday, while West Texas Intermediate was above $70. Opinion remains divided on the Fed's easing path, but some are wagering it will start with a ½-point cut.  Lower rates would likely provide bullish tailwinds for energy demand.  Oil has lost around 14% this qtr on China's economic slowdown & signs of plentiful supply.  Positioning of trend-following commodity trading advisers are close to their maximum short positions after a recent price slump which may ease selling pressure.  The market is torn on the size of the interest-rate cut & investors are probably covering their positions ahead of the decision, helping to keep oil prices elevated.  There are also lingering concerns about Libyan supply.  Brent for Nov settlement was 0.4% higher at $73.0 & WTI for Oct rose 0.7% to $70.56 a barrel.

Oil Climbs Ahead of Fed Decision But Demand Concerns Persist

Stocks treaded water as investors expressed uncertainty over the size of the Federal Reserve's expected rate cut, which is to be announced at the conclusion of the major policy meeting.  Investors were weighing data that showed retail sales surpassed estimates in Aug, with a focus on signs of a slowdown in consumer spending.  The reading is the last piece of data that could factor into the Fed's thinking on whether to opt for a substantial rate cut rather than a qtr-point move.