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Morning Brew September 20 2024
Erik Schafhauser
Senior Relationship Manager
Summary: Equities Celebrate the Fed as Quadruple Witching Friday Looms
Good morning.
Equities celebrated the 50 Basis point cut and Dow, S&P and Dax hit all time highs.
The S&P 500 rose 1.70%, the Nasdaq 2.5 %, the Dow +1.26% and the Dax 1.5%. Tech gained massively with Tesla +7%, Nvidia +4%, Meta and apple close to 4, Amazon and Microsoft 1.8% and Alphabet 1.4%.
The Fed rate cut cycle starts with a bang as Peter comments in his Equity Note for the week:
- Fast now, but slowing ahead: The Fed cut rates by 50 bps, balancing the labour market and inflation, with a focus on full employment. Fed Chair Powell indicated future cuts would occur at a slower pace, with a projection of 50 more bps cuts by year-end and a gradual decline to 2.75-3% by 2026.
- Rate cut cycles and market history: Despite concerns from past cycles like 2000 and 2007, only 3 out of 20 cycles since 1957 have resulted in negative equity returns. Historically, rate cut cycles have led to strong equity performance, suggesting a need to adjust portfolios toward sectors like consumer discretionary, utilities, and energy.
- Equity market reaction: Following the Fed’s rate cut, market reactions were mixed, with confusion evident across sectors. While energy and communication services outperformed, utilities and tech lagged. The next two days will be critical to assess whether there is a sector rotation or a move into small caps and cyclical sectors.
EURUSD is 1.1160, GBPUSD is testing the 1.33 USDJPY 142.30 after the Bank of Japan left rates unchanged. The Bank of England, the PBoC and the BoJ basically met expectations,
Bitcoin is up 10% from a week ago to trade at 63.700, Gold is at 2594 and Silver 31.05.
10 Year Yields are at 3.70 and the USD Index 100.50
Today will be a curious day as there is little on the agenda in terms of either economic data or speakers, Patrick Harker will be the first Fed Speaker after the FOMC at 20:00 tonight.
German Economic Minister Habek is calling for a summit on the Automotive industry after also Mercedes issued a profit warning.
I expect either a quiet day or one of those wild Fridays where position adjustments cause fast moves as we have the Quadruple witching Friday where Futures and Options expire,
Besides economic events, the situation in the middle east is heating up as Israel is following up it`s attack against Hezbollah with airstrikes.
Remain on your toes!
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
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