Fed minutes show divided opinion on 50bps cut

The release of the minutes from the September FOMC meeting, where the Fed chose to go large with a 50bps reduction to the fed funds rate as it implemented its first cut in four years, would appear to confirm that another outsize move is unlikely at the next meeting. The market had already moved away from expecting another half point cut next month as recent labour market data had come in very strong, but the minutes showed that while there was only one dissension on the decision at the last meeting, not everyone was necessarily in favour of the larger cut. Nearly all members saw the inflationary risks as having diminished, however, and we hold to our expectation of two more 25bps cuts before year-end. Markets are now watching for the September CPI print, where further disinflation is anticipated.

India’s RBI held its benchmark repo rate at 6.5% yesterday, as had been widely anticipated. However, the language around the decision turned far more neutral compared with the previous hawkish commentary from Governor Das in particular, paving the way for a first cut from the central bank before year-end.

The People’s Bank of China has set up a USD 71bn liquidity tool to facilitate investment in stocks by institutional investors. Further, Chinese finance minister Lan Fo’an will hold a briefing on Saturday, it was announced yesterday, as markets were disappointed by the meagre stimulus package announced on Tuesday.

The Hafeet rail project, which will link the UAE and Oman, has secured USD 1.5bn in financing, with a number of local and international banks participating. The project should help boost growth both in the near term as construction gets underway, and over a longer term horizon as it will cut journey times and help link up both heavy industrial sites and ports, and boost intermodal connectivity which can help support manufacturing.

CPI inflation in Egypt was almost unchanged on an annual basis in September, rising modestly to 26.4%, from 26.2% the previous month. Core inflation slowed to 25.0%, from 25.1% in August. Headline inflation was at 2.1% m/m, the same pace as on the previous print. Subsidy cuts have seen price pressures pick up again in Egypt, albeit at a more modest level than seen earlier in the year. The CBE will likely keep rates on hold at its meeting next week, but we still see scope for easing before year-end.

Today’s Economic Data and Events

16:30 US initial jobless claims, week to October 5. Forecast: 230,000

16:30 US CPI inflation, % y/y. Forecast: 2.3%

Fixed Income

• US treasuries sold off further yesterday as comments from Fed officials such as Mary Daly put a further dampener on any hopes of another 50bps cut.
• Yields on the 2yr rose 6bps to 4.0215%, while the 10yr also added 6bps to 4.0647%.

FX

• The dollar index also climbed further yesterday, adding 0.4% against its basket of peers, taking it back to mid-August levels on the back of an eighth straight session of gains.
• JPY lost 0.8% and is inching back towards the 150 level, closing at 149.31 yesterday, although it has made modest gains this morning.
• NZD was the notable loser against the greenback, dropping 1.2% to close at 0.6063 after the central bank delivered a bearish 50bps cut.
• GBP fell 0.3%, and EUR dropped 0.4%, to 1.3071, and 1.0939 respectively.

Equities

• Global equities had a stronger day yesterday. In Europe, the FTSE 100 added 0.7%, the CAC 0.5%, and the DAX 1.0%.
• The S&P 500 hit a new record high yesterday, and closed up 0.7% on the day. The Dow Jones gained 1.0%, while the NASDAQ trailed with a 0.6% gain.

Commodities

• Oil prices dropped for the second day running yesterday, with Brent futures closing down 0.8% at USD 76.6/b, while WTI closed down 0.5% at USD 73.2/b,
• The EIA reported that USD crude stocks rose by 5.8mn bbl last week, higher than had been predicted. Gasoline stockpiles fell by 6.3mn bbl.