A Quick Note on the Fed, On Gold and On Stocks

Since this week will be mostly about the Fed, I can keep the written post very brief and to the point.

Here's from our internal Monday morning note:

9/16/2024

Nick T’s WSJ article effectively moved the needle to a 50 bps cut on Wednesday… Since the article, odds have spiked to 64% (in fed funds futures)... If that’s the case, the US central bank is clearly the most dovish among the majors, per the below:

After the ECB’s 25 bp cut last week, here’s from one of its own members, Peter Kazimir (HT P. Boockvar):

"We will almost surely need to wait until December for a clearer picture before making our next move. I would require a significant shift, a powerful signal, concerning the outlook to consider backing another cut in October. But the fact is that very little new information is in the pipeline...Last week's decision definitely doesn't mean we're on a path to cut rates every time we meet. We stay open minded, but from my perspective, there is still more risk that inflation will be higher over the medium term than we currently project." 

The BOE is signaling caution in terms of further rate cuts, expectations are for a hold at this week’s meeting.

The BOJ is indicating more rate hikes to come.

Thus, the path of least resistance for the dollar is clearly lower… Unless, that is, the Fed surprises with .25 bps on Wednesday, or maybe does 50, but with sufficiently (to arrest the dollar’s decline) hawkish forward commentary.

On a separate, but related, note, Gold’s relentless march higher, while perhaps justified by interest rate, and dollar, expectations, I suspect it also – in a not-small way – reflects other central banks desire to diversify away some of their dollar-dependence... That said, it's looking pretty overbought right here; a bit of profit-taking over the coming days/weeks would not at all surprise me.

With regard to stocks this morning, I must say that the fact that the S&P is flat, and that the Nasdaq is off .74%, and that the VIX is up a chunk is quite interesting, given the spike in the odds of a 50 bp cut (all things equal, bullish for stocks)… Apparently, the equity market is, if only for the moment, nervous about Wednesday’s Fed decision/commentary.