Global markets surged following the Federal Reserve’s rate cut announcement of half a percent, the first rate cut in over four years. This was especially welcome news for the technology sector, which rallied on the prospect of lower lending costs and improved capital flow prospects in the near future. Other rate sensitive sectors also advanced in the U.S. The Bank of Japan and the Bank of England chose to keep rates steady. In France, much needed political stability seems to be on the horizon as a new cabinet will shortly be revealed. Chinese policymakers continued their struggle in finding the right measures to revive domestic demand in the economy, as the country runs the risk of exacerbating debt risks while trying to provide growth stimulus. Finally, crude oil prices are firmly on the road to recovery after barrel rates jumped after the Fed’s rate cut.

Global Updates
  • The MSCI All Country World Index surged this week. After the Fed’s announcement, markets around the world were in the green towards the end of the week. The U.S. central bank kicked off an anticipated series of interest rate cuts with a larger-than-usual half-percentage-point reduction that was meant to show policymakers’ commitment to sustaining a low unemployment rate now that inflation has eased.  
  • In macro news, US weekly jobless claims fell to a four-month low, pointing to solid job growth in September and offering confirmation that the economy continued to expand in the third quarter. 
  • Chinese policymakers are likely to step up measures to help the economy meet an increasingly challenging growth target for 2024. Excessive domestic investment amid weak demand has also fuelled deflationary pressures, which have already pushed down prices and forced companies to reduce wages or fire workers to cut costs.
  • Oil prices eased towards the end of the week, but were on track to register gains for a second straight week following a large cut in U.S. interest rates and declining global stockpiles. Prices have recovered after Brent fell below $69 for the first time in nearly three years last week.
  • The U.S. Energy Department plans to award $3 billion to 25 battery manufacturing sector projects in 14 states as the Biden administration works to shift the supply chain away from China.
  • After months of deadlock after the election, France seems to be on the cusp of political stability. Prime Minister Michel Barnier is set to present a new cabinet of ministers to President Macron.
  • The European Commission plans to announce a $39 billion loan to Ukraine as part of a G7 scheme to raise $50 billion on the back of future profits from frozen Russian state assets.
  • The Bank of England chose to exercise caution and leave its key interest rate steady at 5%. The bank plans to reduce the stockpile of British government bonds by 100 billion in the next 12 months. 
  • Bank of Japan also retained policy rate at 0.25% driven by the need to maintain the recovery in consumption and corporate profits notwithstanding rising inflation. In addition, Japan’s exports and imports with the U.S. declined by -0.71% and -2.01% respectively. Worldwide Japanese exports slowed to 5.6% in August and imports to 2.3%.
U.S. Equity
  • The S&P 500 and Dow Jones index touched record highs after the Fed’s much-awaited announcement. The NASDAQ also rallied during the week. 
  • In addition to approving the half-percentage-point cut Fed policymakers projected the benchmark interest rate would fall by another half of a percentage point by the end of this year, a full percentage point next year, and half of a percentage point in 2026.
  • PCE inflation estimate has been lowered to 2.3% for 2024 and 2.1% for 2025. Core inflation was also revised to 2.6% for 2024 from 2.8%. 
  • Intel is planning to isolate its chip manufacturing from chip designing, as an independent subsidiary. To further minimize costs will hold the new manufacturing plants in Germany, Poland and Malaysia in stasis. Notwithstanding, Intel’s foundry has won the contract for producing custom AI chips for Amazon’s cloud services.
  • Microsoft has raised its quarterly dividend payout by 11% and announced stock buyback worth up to $60 billion.
  • Nike CEO John Donahoe, who is retiring in October, will be replaced by Elliott Hill, the former president of Nike’s consumer and marketplace.
  • Verizon’s third quarter earnings might be affected, with $1.7-1.9 billion severance charge after 4,800 employees accepted the company’s buyout offer. 
  • Boeing has announced a hiring and pay freeze to manage the fallout from the workers’ strike that impacted the company’s capability of managing its existing orders. Boeing is also furloughing large numbers of salaried employees to manage its cash crunch and threat to the company’s credit rating.
  • Publicis has purchased Mars United Commerce for $600 million to expand from physical advertising to E-commerce and retail.
Fixed Income
  • The Bloomberg U.S. Aggregate Bond Index declined marginally this week.
  • The U.S. 10-year Treasury yield rose to 3.713% and the yield on the 2-year note edged up to 3.568% over the week.  
  • The U.S. Dollar Index fell slightly to 100.56 this week due to the concerns on likelihood of other major central banks sustaining a tighter monetary policy for longer and risk-on investing motivated by expectations of a soft landing.
Sources

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