Tuesday Sep 17 2024 14:34
4 min
David Buik will be impressed: Amazon is requiring all staff to go to office five days a week. AMZN shares fell after the decision was made public. We looked at work-from-home (WFH) on the Overleveraged podcast recently. I feel like its management trying to justify their positions and failing to adapt — if a worker can do their job from home, what point is the manager?
The US Federal Reserve (Fed) kicks off its two-day meeting today — it is widely expected to deliver its first interest rate cut, with markets debating the size of the cut (25 vs. 50 basis points). Stocks rose early on Tuesday in Europe after a solid session for Wall Street on Monday saw the Dow Jones hit a fresh all-time high.
London's FTSE 100 index was lifted by a big jump for Kingfisher as it upgraded its full-year earnings outlook and M&S got an upgrade from Jeffries. The blue chips rallied about three-quarters of a percent, whilst the mid-cap FTSE 250 rose about a quarter of a percent.
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Monday morning kicked off with markets seeing a 59% chance the Federal Reserve would opt for a jumbo 50-basis-point (bps) cut this week to begin their easing cycle. That’s now up to 69%, which points to a degree of miscommunication from the Fed. It’ll be a surprise either way – the level of uncertainty so close to a decision is at its highest since 2007. I don’t think it matters too much whether it’s 25 or 50 basis points in the grand scheme of things, but the uncertainty means positioning is tricky and the delta may be potentially larger in the immediate aftermath of the decisio.
Markets may not be fully appreciative of the risks from going deep now – the election will be on the minds of policymakers for sure, even if it doesn’t materially affect their decision. Also on their minds is the financial market instability from August and, to a less degree, earlier this month. If the Fed goes big, it will further close the yield spread with Japan, which could result in further deleveraging in carry trades and equity market turmoil. I discussed the August flash crash in a piece last month.
The case for a big cut is clear enough – even with 100bps of cuts this year they’d still be well above the neutral rate – so why delay? Interesting to note that with inflation above 8% and about to hit 9%, they hiked just 25bps – too loose for too long on the way and the risk is that they are too tight on the way out for too long.
Staying with the BoJ, and traders seem agreed that the central bank will not hike interest rates this week. Again, their eyes are on the yen carry trade. Although ultimately, we know the Fed has more cutting to do and the Bank of Japan has more hiking to do — it’s about the speed of the moves. Hiking at the same time as a big cut by the Fed could cause unnecessary strain for low volatility trades and they are mindful of the ripple effect on equity markets.
And still on the yen, USDJPY seems to have found some stability around the 140 handle and 61.8% retracement for the time being.
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Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.
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