Powell Frames Fed Cut as Risk Management, Equities Struggle for Direction

GLOBAL MOOD: Cautiously Risk-on
Drivers: Fed Rate Cut, Weak US Labor Market, Housing Slowdown

 Markets showed mixed sentiment after the Fed delivered a 25bps “risk management” cut, signalling more easing ahead. Equities wavered, Treasury yields rose, and the dollar rebounded as investors weighed Powell’s cautious balance between jobs and inflation.

TODAY’S WATCHLIST
 - BoE Interest Rate Decision
 - ECB President Lagarde Speech

THE BIG STORY
The Federal Reserve cut interest rates on Wednesday for the first time since December, lowering the benchmark range by 25 basis points to 4.00%-4.25%, while signalling that additional cuts are likely at upcoming meetings in October and December. The move responds to growing concerns over a weakening US labour market, including higher unemployment among Black workers, a declining workweek, and subdued hiring.

Fed Chair Jerome Powell emphasised the balancing act between supporting maximum employment and keeping inflation in check, noting that the pace of job creation is currently insufficient to prevent a rise in unemployment, and that any uptick in layoffs could quickly worsen labour market conditions. The rate cut partially aligns with President Donald Trump's call for lower borrowing costs but falls short of the steeper reductions he has advocated, and was opposed by new Fed Governor Stephen Miran, who cast the sole dissenting vote.

Data Spotlight
US single-family homebuilding fell sharply in August, dropping 7.0% to a seasonally adjusted annual rate of 890,000 units, the lowest since April 2023, as a glut of unsold homes continues to weigh on the housing market. This decline highlights the potential for the sector to remain a drag on economic growth in the current quarter.

Meanwhile, US crude oil inventories tumbled by 9.285 million barrels in the week ending September 12, the largest drop in three months and well above expectations of a 1.5-million-barrel decrease. At the Cushing, Oklahoma delivery hub, crude stocks fell slightly by 296,000 barrels, while gasoline inventories dropped 2.347 million barrels, exceeding forecasts of a modest 0.7-million-barrel decline.

Takeaway: Weakness in single-family homebuilding signals continued headwinds for the US economy, while the sharp draw in crude and gasoline inventories points to tightening energy supply that could support oil prices in the near term.

WHAT HAPPENED OVERNIGHT

• US stocks mixed as Fed cuts rates; Nasdaq dragged by Nvidia
  
  • US stocks ended mixed with Nasdaq and S&P 500 closed lower in choppy trading; Dow ended higher.
  • The Federal Reserve cut rates by 25bps as expected, citing a weak US job market.
  • Fed Chair Powell highlighted downside risks to employment but stressed inflation remains a concern.
  • Nvidia fell 2.6% after China’s regulator restricted its biggest tech firms from buying all of Nvidia’s AI chips.

• US Treasury yields rise as Powell speaks after Fed rate cut
  • Benchmark US Treasury 10-year note yield rose 4.6 basis points to 4.072% after initially turning lower post-Fed cut.
  • The 2-year Treasury yield climbed 3.9 basis points to 3.51%, reflecting Fed rate expectations.
  • The 30-year bond yield increased 2.4 basis points to 4.669% as investors digested Powell's commentary.

• US Dollar rebounds after Fed rate cut and initial slide
  • The US dollar steadied early Thursday after rebounding from a 3½-year low.
  • Dollar index fell to 96.224 against major currencies immediately after the Fed decision.
  • The greenback later surged to 97.074, up 0.44% on the day.

• Crude oil prices slide on rising US diesel stockpiles amid Fed rate cut
  • Brent crude oil prices eased after US diesel inventories rose, stoking demand concerns.
  • Brent crude fell 0.76%, to $68.22 a barrel while US WTI crude dropped 0.73%, to $64.05.
  • Market sentiment also reflected the impact of the Federal Reserve’s expected 25 basis point rate cut.

Day’s Ledger

Economic Data

• Australia Aug Employment Data
• Euro July Current Account
• US weekly Jobless Claim Data

Corporate Actions

• Capital Trust to consider rights issue
• Godawari Power to consider fund raising 
• Kaya to consider fund raising
• Tega Industries to consider fund raising

Policy Events

• ECB President Lagarde Speech
• ECB Buch Speech
• ECB Guindos Speech
• ECB Schnabel Speech
• BoE Interest Rate Decision

Tickers to Watch 

• AAVAS FINANCIERS to raise up to ₹85 billion via NCDs over the next year
  
• ADANI COMMODITIES secures Chinese regulator’s nod to sell 20% stake in AWL Agritech
  
• BANDHAN BANK offloads 153.93 million YES Bank shares to Sumitomo Mitsui Banking
  
• BHARTI AIRTEL fined by DoT for breaching subscriber verification rules
  
• CENTRAL BANK OF INDIA to invest ₹644 million in subsidiary through rights issue
  
• COCHIN SHIPYARD signs ₹2 billion contract with ONGC to repair jack-up rig
  
• ESCORTS KUBOTA rolls out new combine harvester in Punjab and Haryana
  
• JSW STEEL subsidiary to acquire additional economic interest in M Res NSW for $60 million
  
• POWER GRID receives LoI for interstate transmission system project
  
• TVS MOTOR unveils EV–smartwatch integration for iQube in partnership with Noise

Must Read

• Sebi mulls allowing FPIs in non-cash, non-agri commodity derivatives
• Market to rally if nominal growth improves, earnings pick up: Chris Wood
• Exports to rise 6% this year, will end year on positive note: Goyal
• Private capex revival in India expected only next year: S&P Global
• ₹3.6 trillion given to 22 states under 50-year loan, says FM Sitharaman
• Chinese Officials Urge Firms to Shun Nvidia AI Chip
• Housing Starts Declined More Than Expected in August
• Bank of Canada Cuts to 2.5%, Moving ‘Carefully’ Amid Risks
• Highest UK Inflation Since Early 2024 to Keep BOE Cautious
• EU Proposes Suspending Israel Trade Perks Over Human Rights

See you tomorrow with another edition of The Morning Edge.

Have a great trading day.

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