Overnight in China, authorities announced that PBOC Governor Pan Gongsheng will hold a press conference on financial support for economic development. Shortly after that announcement, the PBOC cut the 14-day reverse repo rate, reinforcing expectations for further rate cuts, especially after the US Federal Reserve began cutting rates. The 14 day reverse repo rate was cut to 1.85% from 1.95%, while injecting 74.5 billion yuan of liquidity. They did keep the 7-day reverse repo rate unchanged at 1.7%, adding 160.1 billion yuan. The rate cut aims to support economic growth
Weak China August data raised concerns about missing the 5% growth target. China’s 10-year bond yield dropping to 2.03%, and the CSI 300 Index extending gains for a fourth consecutive day.
The Federal Reserve but rates by 50 bps last week. Today, Minneapolis Fed President Neel Kashkari stated that the recent 50 bps rate cut was appropriate, reflecting progress on inflation and a softening labor market. He projects the year-end rate at 4.4% and 3.4% by the end of 2025, aligning with the Fed’s median forecast. While inflation control is on track, it’s too early to declare victory. Kashkari noted policy remains tight, though its exact level of tightness is unclear, with future rate decisions depending on incoming data. Economic signals remain mixed, with resilient consumer spending but no strong signs of recession or inflation surprises.
Atlanta Fed President Raphael Bostic with comments just out. supported the 50 bps rate cut as a compromise, balancing inflation uncertainties and labor market risks. He stated that recent data indicate the U.S. economy is on a sustainable path to price stability. The half-point cut doesn’t set a precedent for future cuts. Bostic noted increased risks to the labor market, with price increases mainly focused on housing, and the economy nearing normal conditions. Businesses are being cautious in hiring but are not planning layoffs.
Fed Kashkari says cutting rates was a judgment call but thiks therisks of unemployment going up is greater than inflation moving higher. A doesn’t want to declare mission accomplished on inflation but wants to keep labor market strong. Expects smaller steps going forward. He thinks that the neutral rate has a lot of ambiguity. He characterized the 50 basis point rate cut as a meaningful step to get the process moving.
Later today at 9:45 AM ET, the S&P Global flash PMI for September will be released with expectations of 48.5 versus or 7.9 last month. The services flash estimate is expected of 55.2 versus 55.7 last month.
A snapshot of the other markets as the North American session begins shows:
- Crude oil is trading up $0.10 and $71.15. At this time yesterday, the price was at $70.88
- Gold is trading up $1.96 or 0.08 at $2623.90. At this time yesterday, the price was $2614.80
- Silver is trading down $0.40 or -1.31% at $30.74. At this time yesterday, the price is at $31.32
- Bitcoin is trading at $63,458. At this time yesterday, the price was at $63,475
- Ethereum is trading at $2646.50. At this time yesterday, the price was at $2548.20
In the premarket, the snapshot of the major indices trading lower after sharp gains yesterday
- Dow Industrial Average futures are implying a loss of -13.36 points. Yesterday, the index rose 38.17 points or 0.09% at 42063.36.
- S&P futures are implying a gain of 4.95 points. Yesterday, the price fell -11.09 points or -0.19% at 5702.55
- Nasdaq futures are implying a gain of 42.51 points. Yesterday, the index fell -65.66 points or -0.36% at 17948.32
Friday, the small-cap Russell 2000 was lower by -24.81 points or -1.10% at 2227.88
European stock indices are trading mostly lower:
- German DAX, +0.56%
- France CAC, -0.20%
- UK FTSE 100, -0.18%
- Spain’s Ibex, + 0.31%
- Italy’s FTSE MIB, -0.05% (delayed 10 minutes).
Shares in the Asian Pacific markets closed higher
- Japan’s Nikkei 225, on holiday
- China’s Shanghai Composite Index, +0.44%
- Hong Kong’s Hang Seng index, -0.06%
- Australia S&P/ASX index, -0.69%
Looking at the US debt market, yields are mixed with the shorter end higher and the longer lower (flatter yield curve):
- 2-year yield 3.574%, unchanged. At the same Friday, the yield was at 3.610%
- 5-year yield 3.501%, +1.7 basis points. At this time Friday, the yield was at 3.408%
- 10-year yield 3.750%, +2.3 basis points. At this time Friday, the yield is at 3.735%
- 30-year yield or .099%, +2.7 basis points. At this time Friday, the yield is at 4.061%
Looking at the treasury yield curve, is similar to yesterday’s levels at this time
- The 2-10 year spread is 17.9 basis points. At this time yesterday, the yield spread was +12.4 basis points.
- The 2-30 year spread is 52.6 basis points. At this time yesterday, the yield spread was +45.1 basis points.
In the European debt market, the 10 year yields are mostly lower:
This article was written by Greg Michalowski at www.forexlive.com.