Tuesday – September 24, 2024
UMBS opened up 5 bps in early trading. S&P Futures up 6.75 points.
US stock futures were volatile, while global equities rallied after China announced significant stimulus measures to boost economic growth, including cutting reserve requirements for banks and injecting $114 billion in liquidity. The S&P 500 showed signs of a flat opening, while European stocks rose 0.6%, particularly in sectors tied to China. Yesterday the S&P 500 reached it’s 40th all-time high of 2024.
Treasury yields increased, oil prices climbed on hopes of a stronger Chinese economy, and gold hit a new record. Despite the stimulus, BNP Paribas cautioned it may not immediately alleviate downside risks, especially in Europe. Investors now focus on upcoming US economic data, including the Fed’s preferred inflation metric and consumer spending, for clues on future rate cuts.
Risk assets received another boost yesterday from the latest Fed speakers, who affirmed their plan to keep cutting interest rates. With Goolsbee saying “many more rate cuts over the next year.” Neel Kashkari expects the Fed to dial down its pace of rate cuts in the future. Meanwhile, Atlanta Fed President Ralph Bostic expects the Fed to move aggressively to get to a neutral rate
Futures are pricing in a 54% chance of another 50 bps cut in Nov.
The economy grew in September, however services continue to be the driver while manufacturing wanes. Confidence is deteriorating, as input costs continue to rise, especially labor.
The first few hours of domestic trading caused some concern that the post-Fed rate correction was far from over. At the time, yields were up several bps from closing levels and had just broken above yesterday’s highs. That’s not the sort of thing you want to see if you’re hoping for bonds to level off. Everything changed after the Consumer Confidence data. While this isn’t a report that reliably causes a reaction in the bond market, it’s “labor differential” component is more closely watched recently. Derived by subtracting the “jobs hard to get” line item from “jobs plentiful,” the differential is increasingly pointing toward a softer job market–something that is well understood to align with more aggressive rate cuts from the Fed.
UMBS closed the day up 9 bps at 101.42
