while WE slept: USTs 'bout UNCH; "Sell the fact..." (BMO); "An emergency cut without an emergency" (UBS) and more FOMC recaps / victory laps ...

Good morning … NOW we know and while Global Wall’s reaction was, as always, funTERtaining — more from them and the inbox below and in a moment — let us rip the bandaid off and begin …

Now with what appears to be a one-handed clap in response TO larger than life rate CUT (historic in size, see Authers’ below), let us remember not ALL are unhappy ‘bout it and BET on 50 …

First up ahead of the cutting cycle, home buyers builders and the like seem to have ‘gotten the joke’ …

ZH: Housing Starts & Permits Surged In August As Rate-Cut Euphoria Re-Emerged

… and so, that ‘JOKE’ referred to above is, well, how the Fed was to go above and beyond with rate cuts … impressive if not suggesting they’ve maybe got some recon and know / think econ bit worse off and / or Fed really behind the curve.

For even MORE on the ‘JOKE’ …

ZH: 'Apolitical' Fed Slashes Rates By 50bps With Stocks & Home-Prices At Record Highs

ZH: Wall Street Reacts To Today's 50bps "But No Crisis" Rate Cut

WolfST: Fed Cuts by 50 Basis Points, to 5.0% Top of Range, Sees Additional 50 Basis Points in 2024, QT Continues

But the longer-run rate for its target rose to 2.9%, continuing the series of increases, slowly but steadily rising from the ashes of the ZIRP era.

… here is a snapshot OF USTs as of 655a:

… and for some MORE of the news you might be able to use…

• IGMs Press Picks: September 19 2024

• NEWSQUAWK: US futures bid, USD pressured and fixed flat; BoE due before US data … Bonds are incrementally lower (but off worst levels), Gilts remain steady ahead of the BoE policy announcement … USTs lifted from overnight lows but still just about in the red for today’s session as markets continue to digest the FOMC ahead of data this afternoon. Currently holding around the 115-00 mark, which is at the top-end of the day’s range and clear of the overnight 114-22 base.

• Reuters Morning Bid: Stocks lap up Fed's fast 'recalibration', BoE up next

• Opening Bell Daily: Cutting deep. Does the Fed’s jumbo rate cut mean we’re headed for a recession? Perhaps the opposite. The reasons behind the 50-basis-point move, explained by a top Wall Street strategist.

• Finviz (for everything else I might have overlooked …)

Moving from some of the news to some of THE VIEWS you might be able to use… here’s SOME of what Global Wall St is sayin’ … mostly what follows is a Global Wall recap and victory lap set of emails / research … presented withOUT comment …

ABNAmro: Fed Watch - Fed cuts by 50 bps to orchestrate soft landing | Insights newsletter

The Fed eased rates by 50bps in the first non-unanimous decision since 2022, and the first dissent form a Fed Governor since 2005. Powell described it as a meeting with 'good diversity of opinion and excellent discussion.' Indeed, there were good arguments for either a 25 or 50 bps cut. Markets were pricing in a roughly 65% chance of a 50bps cut before the meeting, while only 10 out of 113 economists surveyed by Bloomberg expected the 50 bps cut. The update to the dot-plot likely reveals the FOMC members' initial stance going into the meeting; ten members signaled a rate of 4.5 or below by year end, requiring a 50 bps cut, while nine gave a rate of 4.75 or above by year end, which could be achieved by steady 25 bps. Ultimately the former camp won out.

BARCAP: Federal Reserve Commentary: September FOMC: A 50bp re-calibration

The FOMC initiated its rate​-​cutting cycle today with a larger​-​than​-​expected 50bp cut and an SEP showing 100bp of cuts this year, followed by 100bp in 2025, 50bp in 2026 and a longer​-​run dot at 2.9%. We adjust our rate call, showing two more 25bp cuts this year, followed by three 25bp cuts in 2025.

… In light of today's large cut and the new SEP, we adjust our rate call. We continue to expect that the FOMC will cut rates 25bp at the November and the December meetings, as well as three times in 2025 – in March, June and September. However, given today's larger-than-expected rate cut, our forecast interest-rate path is now 25bp lower, reaching 4.25-4.50% at end-2024, and 3.50-3.75% at end-2025. Our baseline is predicated on inflation remaining moderate on a sequential basis and the unemployment rate edging up this year before declining to 4.2% in 2025.

BMO Close: Sell the fact...

… As the market digests the Fed’s actions and forward guidance, the backup in yields has reinforced our range-trading thesis. We long viewed the runup to today’s announcement as the window that would see the greatest bond bullish influence from the Fed’s first move. It’s impressive that in the classic, ‘buy-the-rumor, sell-the-fact’ dynamic, the ‘fact’ of a 50 bp cut was still met by selling. Positions are being squared and the market is moving back into the mode of trading the incoming economic data with an eye to the potential influence from the Presidential race…

BNP: US September FOMC: Committed to not falling behind the curve

KEY MESSAGES

• We view the Fed's decision to start the easing cycle with a 50bp rate cut as more about making up for holding steady in July, rather than a signal of similarly jumbo-sized future moves.

• We continue to see the Fed cutting by 25bp at each of its coming meetings through March 2025 and switching to a quarterly pace thereafter. Following today's move, we see end-2024 and 2025 fed funds at 4.50% and 3.25%, respectively - 25bp lower than our prior forecast.

• The Fed's insistence on not falling behind the curve makes us more confident in our baseline call for a soft landing.

DBDaily - Fed cuts 50, dots say 50 more this year

…Fed Dots: Sep vs Jun

DB: September FOMC recap: Powell delivers some good dovin'

• The Fed opted for a more aggressive start to the cutting cycle, reducing rates by 50bps. However, the signals from the meeting – through the dot plot and Chair Powell's press conference – were that this action was a "recalibration" of policy and not the start of a sequence of larger reductions.

• The Summary of Economic Projections (SEP) was close to our expectations. Growth was mostly unchanged over the forecast horizon, while the unemployment rate was revised higher (by 0.4 percentage points this year) and inflation lower (core PCE by 0.2pp in 2024). The median dots expect two more 25bp reductions this year and 100bps of cuts in 2025, putting the fed funds rate at 3.4% at that time. Somewhat surprisingly, the long-run dot edged slightly higher.

• Powell's press conference navigated the communications challenges well. Today's 50bp reduction was framed as a one-off to right size monetary policy to lower inflation and the shift in the risk distribution. He projected a view of a fundamentally strong economy and a labor market that was still historically solid, even if it has cooled. This tone avoided adverse signals about the economy and aimed to dissuade the market from pricing a steeper descent to neutral.

• Our Fed view is mostly unchanged. We continue to expect a sequence of 25bp reductions through the March 2025 FOMC meeting, before the Fed shifts to a quarterly pace with subsequent reductions in June and September of next year. That leaves the fed funds rate in the 3.25-3.5% range at end-2025, near our estimate of nominal neutral.

DB: Early Morning Reid

After keeping rates on hold for 14 months, the Fed finally reversed course and delivered a 50bp cut last night, lowering the fed funds target to the 4.75-5.00% range. This was an 11-1 decision with Bowman becoming the first Fed Governor to dissent since 2005, favouring instead a 25bp cut. The larger cut came amid a dovish shift to the Fed’s inflation and unemployment projections compared to June, with 2025 PCE inflation lowered two tenths to 2.1% and unemployment raised two tenths to 4.4%. The SEP also showed a notable shift in the balance of risks, with a clear majority of the FOMC now seeing unemployment risks weighted to the upside but inflation risks as broadly balanced.

However, accompanying the larger cut was a signal of a fundamentally strong economy with no suggestion that continued 50bp cuts were likely. Growth projections were little changed and the dot plot showed the median FOMC member expecting the fed funds range at 4.25-4.50% at year-end. That implies a total of 50bp of further easing over the November and December meetings. In the press conference, Powell repeatedly framed the decision as a “recalibration”, saying that "there is no sense that the committee is in a rush" and adding that "I do not think that anyone should look at this and say that this is the new pace" for easing going forward. Following the meeting, our US economists continue to see the Fed cutting by 25bps per meeting through to March 2025 before slowing to a quarterly pace thereafter. That would leave the fed funds rate in the 3.25-3.5% range at end-2025, near DB's estimate of nominal neutral. See their full post-FOMC reaction here…

… rates and equities saw a strong initial reaction to the decision, but this then reversed as Powell spoke although equities are notably higher again in Asia. While December fed funds futures ended the day -4.8bps lower, reflecting the larger cut, Fed pricing for a year from now in September 2025 actually moved +2.6bps higher on the day. For Treasuries, the 2yr yield fell by 11bps after the rate announcement to trade -7bps lower on the day, but it ended the session up +1.4bps at 3.62% and is trading at 3.65% this morning as we type. Further out on the curve, 10yr yields fell -4bps to trade marginally lower on the day following the Fed decision but more than reversed the move later on, closing +5.8bps higher at 3.70%. 10yr yields are another +1.7bps higher overnight. On the whole, the rates moves were consistent with our strategists’ take earlier in the week (see here) favouring a twist steepening in the event of a 50bp cut.

DB: Six observations after the FOMC

1- It was not about the latest NFP

2- Macro backdrop is supportive of the twist steepening

3- Unofficial blackout guidance is alive and well

4- USD/EUR terminal rate differential remains too tight

5- There is still upside to the BoJ rate path

6- Don't forget the US election

From a macro portfolio perspective, we add a cross market USD/EUR widener via a short Dec-26 Sofr vs. long Dec-26 euribor.

ING: 50bp cut from the Fed as it looks to move rates to neutral quickly and avert recession

The US Federal Reserve wants to get to neutral quickly as it increasingly prioritises potential jobs weakness at a time when it is more comfortable with the inflation backdrop. We look for a further 150bp of cuts by next summer, but the risks are skewed towards the central bank doing more

…Fed funds ceiling with period between last hike and first cut indicated (%)

ING Rates Spark: That's how to sell a 50bp cut!

Fed Chair Powell was confident with that 50bp cut. He sold it well. Remarkably, with no material macro fears, more to prevent macro strain. But if that means a greater probability attached to a soft landing, it also reduces room for long rates to fall. We think they can edge higher, at least for now. We saw some of that post the FOMC. Prepare for a bit more ahead

MS FOMC Reaction: September Meeting | US Economics & Global Macro Strategy

The cycle begins with a 50bp cut and a stress on both sides of the dual mandate. Powell emphasized the FOMC's commitment to being data-dependent and nimble. We see a string of 25bp cuts through mid-2025. Our MBS strategists go long agency MBS vs. rates. Our strategists maintain 2s20s steepeners.

Key expectations

• The FOMC lowered the fed funds rate by 50bp to 4.875%. The FOMC statement acknowledged further progress on inflation and risks to the labor market. The Summary of Economic Projections (SEP) shifted to four cuts this year instead of one, marking-to-market for softer inflation and labor market data.

• A larger first move signals the Fed's commitment to not falling behind the curve and their confidence in disinflation. Powell stressed the cadence of future cuts will be based on incoming data.

• We look for a string of 25bp cuts through mid-2025 – two additional 25bp cuts this year and four 25bp cuts in 1H25.

• Our rates strategists suggest investors maintain UST 2s20s steepeners and convert flatteners between the September FOMC OIS rate and November FOMC OIS rates into an outright received position in the November FOMC OIS rate.

• Our FX strategists recommend short USD/JPY positions as the Fed continues its cutting cycle.

• On the agency MBS side, our strategists move overweight given improving technicals, a base case outcome that is good for risk assets, and reasonable valuations vs. other high-quality fixed income products.

RBC: U.S. Fed cuts 50 basis points with more reductions to come

…Bottom line:  The Fed took pains to reinforce the view that this initial 50 basis point cut is the beginning of a "recalibration" cycle -designed to keep the economy in a strong pace rather than a response to rapid softening in the economic growth backdrop. But monetary policy impacts the economy with a lag and concern has clearly increased that the larger than 'normal' interest rate cut today was needed to reduce the risks of falling too far behind what has, for now, been a very gradually softening labour market. While downside risks remain, we continue to expect (similar to the Fed) that labour markets will continue to gradually soften but not falter, and for the Fed to follow with further gradual interest rate cuts. 

UBS: An emergency cut without an emergency

The US rate-cutting cycle began with a 50bp cut—the sort of move normally reserved for an economic emergency. The US has near full employment, steady consumption, and rising real wages. This is no economic emergency. It is not plausible to claim Federal Reserve Chair Powell knows something economists do not (especially after yesterday’s press conference). The fact that a Fed governor dissented for the first time in 19 years helped reduce the impression of panic.

What did the Fed’s tightening accomplish? Most of the decline in US inflation over the past two years would have happened, regardless of Fed policy. Fed policy may be adding to inflation today via housing price measures (both real and imagined). Rates needed to rise from 2021 levels, but the soft economic landing is due to the US middle class, not Fed Chair Powell…

Wells Fargo: FOMC Starts Easing Cycle With a Bang

Summary

• The FOMC surprised some market participants today by reducing the target range for the federal funds rate by 50 bps. Concerns about the state of the labor market appear to have been the primary driver of the 50 bps move.

• But the FOMC signaled that it may not necessarily follow today's 50 bps rate cut with additional large reductions in upcoming meetings. The median dot in the so-called "dot plot" implies two 25 bps cuts if further easing is spread evenly over the two remaining meetings this year.

• Only one voter (Governor Michelle Bowman) dissented at today's policy meeting, preferring a 25 bps rate cut instead, but the dot plot indicates that a meaningful share of the Committee appears to be in no hurry to reduce the fed funds rate at a rapid clip.

• The FOMC may indeed slow the pace of rate cuts in coming meetings. But we remain of the view that monetary policy will be back near neutral in one year's time. That is, we look for the federal funds rate to be roughly 3.00%-3.25% or so by this time next year. We will formally update our meeting-by-meeting fed funds forecast in the coming days…

.… And from Global Wall Street inbox TO the WWW, where the intertubes are ALSO buzzin’ over the larger than life rate CUT …

at BESPOKE:

Here's today's intraday action overlaid on a composite chart of the 54 Fed Days since Powell has been Fed Chair. The last-hour selloff is certainly a fixture.

5:03 PM · Sep 18, 2024

Bloomberg: Markets Got Powell's Message — Smaller for Longer

The steam from a 50-basis-point rate cut was let out quickly by the Fed chief dousing future expectations

… Big cuts generally happen at times of great stress — most recently the pandemic and the Global Financial Crisis. According to the Chicago Fed’s index of financial conditions, things presently are about as lenient as they get. The last time the Fed cut this much when financial conditions were set this fair was way back in 1992:

That might have made the cut look irresponsible. But Powell could present it as wholly good news, because it was so obviously unforced by circumstances. Big cuts in a crisis merely prove that things are tough. The key for Powell, to use the phrase of Goldman Sachs’ Lindsay Rosner, was to convince his listeners that this was “a focused 50, and not a fearful 50.”

at RickRieder

CIO Charts of the Week: As overnight rates have remained high, total money market assets have skyrocketed to $9 trillion. Simultaneously, household allocations to fixed income have remained historically low. With the Fed set to begin moving the policy rate lower, the yield on cash is set to drop significantly in the coming months, based on market pricing. Meanwhile, yields in the belly of the curve remain historically high relative to inflation expectations, offering investors a chance to lock in elevated real yields. We expect the onset of this cutting cycle to continue this recent trend of cash moving off the sideline, which can be a tailwind for fixed income for some time to come.”

8:15 PM · Sep 17, 2024

StockCharts.com: Stock Market Today: Fed Cuts Rates and Market Makes Last Minute U-Turn

…The selloff wasn't too damaging, though. Equities are still holding up. The S&P 500 hit a record in Wednesday's trading, but closed below its blue dashed trendline (see chart below).

CHART 1. S&P 500 CONTINUES TO BATTLE AGAINST RESISTANCE. After hitting an all-time high, the S&P 500 fell and closed below its downward-sloping trendline. The stochastic oscillator in the lower panel is starting to turn lower.Chart source: StockCharts.com. For educational purposes.

The stochastic oscillator is starting to turn lower, but is still above the 70 level. The S&P 500 is trading above its 21-day exponential moving average, which is still sloping higher. There still needs to be a series of higher highs to break the gentle downward-sloping trendline. Remember, it's still September, and the latter part of the month tends to be weaker than the first half…

…Bonds Pull Back
Treasury yields rose after the rate cut decision, resulting in falling bond prices. It's worth watching the bond market. The daily chart of the iShares 20+ Year Treasury Bond ETF (TLT) shows that Wednesday's selloff was sizable. If TLT falls further, watch the upward-sloping trendline (blue dashed line) as a potential support level.

CHART 2. BOND PRICES ARE STILL IN AN UPTREND. Watch TLT's price action at the blue trendline. This could be a viable support level at which the ETF could bounce off and move higher.Chart source: StockCharts.com. For educational purposes.

Ideally, when interest rates fall, bond prices should go up. If TLT bounces off the trendline and moves higher, it would be an opportunity to accumulate more positions in TLT…

… THAT is all for now. Off to the day job…