The Fed will decide today between a 50bps and 25bps rate cut, with most traders and investors betting on the deeper cut, which helped the major US equity index touch a new record high price yesterday.
- Markets are completely focused on the US Federal Reserve’s meeting later today, at which it is universally expected to begin a process of cutting its interest rate for the first time in 4 years. Sentiment has shifted in favour of an expected 0.50% cut, with 65% expecting this compared to 35% expecting a 0.25% cut, according to the CME FedWatch tool. However, the swap market is implying a 55% chance of a deep rate cut. The market surprise will be towards a 25bps rate cut, which would certainly see at least a temporary but strong selloff in risky assets. For now, markets are mostly consolidating while waiting to see what action the Fed will take.
- Gold is looking long to medium-term bullish and is still trading close to the record high it made yesterday just below $2,600. Gold is trading in blue sky and could keep rising higher and higher. Trend traders will be interested in being long of Gold.
- The Japanese Yen weakened yesterday against its long-term bullish trend as a currency with a divergent monetary policy from the dovish moves to cut rates which are being seen almost everywhere else. The USD/JPY currency pair has not traded at a new low, and it spiked up when higher than expected US Retail Sales data was announced yesterday. Trend traders will be interested in being long of the Yen.
- In the Forex market, the Japanese Yen has been the strongest major currency since the Tokyo open today, while the US and Australian Dollars have been the weakest, in line with long-term trends.
- The US 2-Year Treasury Yield is looking bearish and is likely to fall further if a 50bps rate cut is announced by the Fed later today. Trend traders will be interested in being short here if they can access this asset (micro futures contracts are available on the CME).
- There will be a release today of UK CPI (inflation) data, which is expected to show an unchanged annualised rate of 2.2%.
- US Retail Sales data released yesterday came in higher than expected, showing a month-on-month increase of 0.1% when a decline of 0.2% was anticipated. This slightly shifted sentiment more towards an expectation of a 25bps rate cut by the Fed today.
- Canadian CPI (inflation) data released yesterday came in lower than expected, falling by 0.2% month-on-month, when no change was expected. However, Median CPI ticked slightly higher, up unexpectedly to 2.3% annualised, so the message was a bit mixed.
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