Morning Brew July 27 2021

Good morning.

The Fed kicked off it`s rate cut cycle with a bank delivering the slightly favored 50 Basis point cut while leaving options open going forward. While Powell conveyed optimism on inflation, he also stressed the Fed is not yet where it wants to be.

The expected rate path did not change after the press conference, the year end is seen at 4.12 and the September 25 at 2.93.

Traders are having a hard time making sense of the meeting yesterday, during the press conference and the aftermath, we have seen wild swings in many financial products. The US 500 rose to 5692, fell 80 points and is now back at 5673.

Silver traded as high as 31.25, fell to 29.70 and is now 30.90. It needs to break resistances soon if it is set to maintain the positive momentum.

10 year rates in the US are actually 10 basis points higher since yesterday and the USD Index is trading higher driven by a rise in USDJPY.

With the Fed remaining data dependent, the next really big thing are the PCE Deflator next week and the next Nonfarm Payroll but I expect comments out of US Central Bank circles to move markets before.

Charu`s assessment of the decision is available here: https://social.saxo/mwo6lca?uuid=tH1rgm_

• Fed Cuts 50bps: The Fed’s 50bps rate cut, reducing the target to 4.75-5.00%, was more aggressive than anticipated. The new dot plot suggests further cuts, with a 2024 median rate forecast of 4.4% signalling another 50bps of rate cuts this year.
• Policy Uncertainty: The dissenting vote split and Fed Chair Powell’s press conference took away some of the dovish implications, leaving the market guessing the Fed’s next steps.
• Goldilocks for Risk Assets: Given the jumbo rate cut comes despite Fed’s positive view on the US economy, this creates a Goldilocks environment that can be favorable for risk assets.
• Long Term Volatility: Lack of forward guidance or the unreliability of the Fed’s dot plot suggests that economic data remains in the driving seat and markets could face bouts of volatility. 

Today, we are expecting the Bank of England and the Turkish national bank, the BoE is not expected to move rates but the amount of bonds to sell is the big question.

Initial Jobless Claims are seen at 230k and the Philly Fed Business Index at -1.

Over night, China and Japan will announce rates and the Japanese CPI will be released, we also expect the UK Retail sales.

From China, we can expect stimulus measures soon due to the tough spot the Chinese economy finds itself in.

Trading has not become easier since yesterday but certainly stayed interesting

Thursday

- Data Australia GDP & Unemployment, UK & Turkey Rate decision, US Initial Jobless Rate,
Earnings: Fedex
Friday
- Data Japan CPI, UK Retail Sales, China & Japan Rate decision.

Physically Settled Futures (times GMT)

CLU4 will expire on 20/aug 1830 hrs
KCU4 will expire on 21/aug 1500 hrs
PAU4 will expire on 22/aug 1500 hrs
ZOU4 will expire on 22/aug 1500 hrs
VXQ4 will expire on 21/aug 1300 hrs
CCU4 will expire on 23/aug 1500 hrs
OJU4 will expire on 26/aug 1215 hrs
RCU4 will expire on 23/aug 0900 hrs

Expiring CFDs(times GMT)

COFFEENYSEP24 will expire on 20/aug 1500 hrs
COCOANYSEP24 will expire on 22/aug 1500 hrs
PALLADIUMSEP24 will expire on 21/aug 1500 hrs
NATGASUSSEP24 will expire on 26/aug 1500