US Macro Data Peaks in September; Powell's Comments Impact Rate-Cut Expectations
US Macro Data Peaks in September; Powell's Comments Impact Rate-Cut Expectations
US Macro Data Soars
According to Bloomberg, US Macro data has seen a significant surge in September, reaching its highest point since late April. However, despite the China stimulus and the super-sized rate cut boosting stocks during the month, the markets ended on a weaker note. European stocks remained largely unchanged for the month, while US stocks saw a slight increase and China experienced a significant rise.
US Majors End the Month Higher
All the US Majors ended the month on a high note, led by Nasdaq 100, with Small Caps trailing behind. Despite the impressive recovery from the lows of the early month, the month-end gains were relatively modest considering the massive easing.
Powell's Comments Impact Rate-Cut Expectations
At around 1400ET, stocks and bonds took a hit when Powell stated that he didn't feel the Federal Reserve was in a rush to cut quickly. He also mentioned that people sometimes pay too much attention to The Fed's SEP [Dot Plot]. This led to a decrease in rate-cut expectations, with less than three cuts now expected for 2024.
Bond-Stock Correlation Flips Negative
Following Powell's comments, stocks fell and yields rose, but they remained notably decoupled on the month. The bond-stock correlation has turned negative after being positive for over a year, with bond gains helping to buffer stock losses. Deutsche Bank strategist Jim Reid advised caution, stating, "One small shock could move things very quickly."
Energy Stocks Suffer in September
Energy stocks were the biggest losers in September, while Discretionary and Utes outperformed, an unusual combination of cyclical and defensives. Despite all stock indices being higher, Treasury yields were lower across the board in September. However, the yield curve steepened dramatically in September, with 2s10s notably dis-inverting before flattening slightly in the last few days.
Dollar Falls for Third Consecutive Month
The dollar fell for the third straight month in September, mostly due to the impact of inflation and payrolls data early in the month. Since then, the dollar has been oscillating sideways, amid the Fed cuts and China stimmies.
Gold and Bitcoin Rally; Oil Prices Fall
Gold rallied for the seventh time in the last eight months, marking its best month since March. On the other hand, oil prices fell for the third straight month, making September the worst month for WTI since October 2023. Bitcoin also rallied in September, marking its best month since May.
Concerns Over Soaring Gold and Crypto and USA Sovereign Risk
With gold and crypto soaring and USA sovereign risk spiking, questions are being raised about what The Fed will do in response. Some are speculating that this could be the reason behind The Fed's rate cuts.
Bottom Line
The US Macro data has seen a significant surge in September, reaching its highest point since late April. However, comments from Powell have impacted rate-cut expectations, causing stocks and bonds to take a hit. The bond-stock correlation has flipped negative, and energy stocks have suffered in September. Meanwhile, gold and Bitcoin have rallied, while oil prices have fallen. With gold and crypto soaring and USA sovereign risk spiking, questions are being raised about what The Fed will do in response. What are your thoughts on these developments? Share this article with your friends and sign up for the Daily Briefing, which is every day at 6 pm.
