What You Need to Know on Wednesday, September 25:
After another record close for Wall Street indices, Asian equity markets maintained their positive momentum, buoyed by a rally in Chinese stocks. This optimism was further fueled by the People’s Bank of China (PBOC) cutting the one-year Medium-term Lending Facility (MLF) rate from 2.30% to 2.0%. This reduction is part of a broader set of stimulus measures aimed at boosting economic growth in China.
Traders largely ignored rising tensions in the Middle East, following reports of an Israeli airstrike in Beirut that killed a senior Hezbollah commander. This incident heightened fears of escalating conflict amid increasing cross-border rocket attacks, according to Reuters.
With risk appetite on the rise, the safe-haven US Dollar (USD) struggled, alongside declining US Treasury bond yields, which saw another dip in early Asian trading. The USD faced significant pressure against major rivals during Tuesday’s American trading, influenced by China’s stimulus-driven market optimism and disappointing US consumer confidence and regional activity data. This weak data heightened speculation for a significant Federal Reserve (Fed) rate cut in November.
The Conference Board Consumer Confidence Index fell to 98.7 this month, down from an upwardly revised 105.6 in August, marking its largest decline since August 2021. Similarly, the Richmond Fed index dropped to a 52-month low of -21, compared to -19 in August and -17 in July.
Currently, markets are pricing in about a 60% chance of a rate cut, according to the CME Group’s Fed Watch Tool. For the next two Fed meetings, rate futures are suggesting more than 80 basis points in cuts. Additionally, the US Dollar was affected by a sell-off in US Treasury bond yields across the curve, prompted by a lackluster auction of two-year government bonds.
The Greenback’s trajectory will depend on ongoing risk trends and a speech by Fed Governor Adriana Kugler, who is set to discuss the economic outlook at the Harvard Kennedy School in Cambridge later today.
