Daily Summary – Fed finally cuts rates, but does not guarantee further moves 💲🎙️

The Fed decided today to cut interest rates by 25 basis points to 4.25%, in line with expectations. The decision was made almost unanimously, with only Miran (newly appointed by Trump to the FOMC) voting for a 50bp cut.

The market reaction was initially optimistic. We saw dollar weakness and a significant rally in the US2000 contract for small caps. However, during the press conference Powell tried to cool investor sentiment and emphasized the Fed’s data dependence. He also added that the Fed does not need to continue further cuts.

9 out of 19 FOMC members project a 50bp cut this year, 2 see one cut, one member (most likely Miran) sees rates falling below 3% this year, while the rest do not expect cuts.

In its macroeconomic projections, the Fed indicated slightly higher economic growth in 2025 and the following years. It expects lower unemployment next year and sees no major inflation risks this year. The Fed stressed, however, that the labor market has clearly weakened and it was appropriate to lower interest rates.

The market was very volatile during the press conference. As of 9:10 PM, the US500 was down 0.10%, the US100 down 0.15%, and the US2000 up 0.5%, though earlier it had been up more than 1% on expectations of further cuts. The dollar rebounded 0.30%.

EURUSD rose to 1.19 right after the decision, but later fell even below 1.1820 during Powell’s press conference.

After steep declines in European equities during yesterday’s session, today saw attempts at a rebound, but most contracts still recorded slight losses. The DE40 was flat, while bigger declines were seen in France, where the FRA40 fell 0.5%, and in Italy, where losses exceeded 1.3%.

Apple’s (AAPL.US) iPhone sales in China fell 6% y/y in July and August, a sharper drop than the pre-launch average for a new model. The entire Chinese smartphone market contracted by 2% in this period despite government subsidies to support consumption.

The U.S. housing market remains under pressure. Today’s August report showed data below expectations and much weaker than the previous month. In September, 1,307k building permits were issued (expected: 1,365k; previous: 1,428k) and 1,312k housing starts (expected: 1,370k; previous: 1,362k).

The pressure stems from high interest rates and financing costs, reducing the willingness for new housing investments.

U.S. crude oil inventories unexpectedly fell by as much as 9.28m brk, compared with expectations for just a 1.6m brk draw. The API report showed a daily drop of more than 3m brk. Gasoline inventories also fell sharply by 2.35m brk, while distillate inventories rose by 4.05m brk.

Crude oil prices are falling in today’s session, paring yesterday’s strong gains. WTI crude is trading just below $64 per barrel. The recent gains were driven by rising concerns about available supply from Russia.

Despite the initial positive reaction to the Fed, gold is down just under 1%, trading below $3,660 per ounce.

UK CPI inflation for August came in at 3.8% y/y, in line with expectations. Core inflation fell to 3.6% y/y, also in line with forecasts. Tomorrow, the Bank of England is not expected to cut rates. Nevertheless, the market sees a cut by the end of this year. GBPUSD continued higher today, even despite a stronger U.S. dollar in the market.

The Bank of Canada, in line with expectations, cut rates by 25bp to 2.5%. The decision was driven by the recent decline in inflation and a deterioration in the economic outlook due to the trade war. Further cuts are less certain. The USDCAD rebounded strongly in the last session after two sharp down days.

Nvidia fell more than 3% on news of a Chinese ban on local tech firms buying its chips.

Meanwhile, Chinese stocks gained sharply on expectations of large AI investments. The HK.cash and CHN.cash indices rose to their highest levels since 2021. AI capital investments are expected to reach nearly $100bn this year, driven not only by state spending but also by private companies like Alibaba and Tencent.

ICE Arabica coffee futures (COFFEE) dropped 7.50% today after changes in Brazil’s weather forecasts, pulling back from local highs. Forecasts point to more rainfall next week, easing drought concerns.

Copper fell 1.25% today. The market is pricing in increased production from Chile, which partially offsets the effect of a weaker dollar. Chile, the world’s largest copper producer (around 25% of global supply), expects output growth this year.