Global Markets On Hold Ahead of Fed Action

Barry Adams
19 Sep, 2023
New York City

Market indexes lacked direction and investors turned cautious ahead of the Fed's rate decision and economic forecast. 

The S&P 500 index and the Nasdaq Composite index dropped as investors awaited the outcome of two-day policy meeting held by the Federal Reserve. 

Investors widely believe that policy committee will hold rates for the second time and leave its target rate range between 5.25% and 5.5%. 

Investors are also looking ahead to the release of economic forecast, and will be looking for Fed's forecast on economic growth, jobless rate and inflation rate. 

The Fed's ten successive rate hikes between March 2022 and May 2023, inflation has slowed down from peak of over 8% to near 4%, but still higher than the 2% target. 

Moreover, inflation has declined because of base effect and the rate hikes have not been restrictive enough to slowdown economic activities. 

Despite multiple rate hikes, interest rates have lagged inflation rate and failed to slowdown consumer spending and business borrowing.

 

U.S. Housing Starts Dropped to 3-year Low 

Higher mortgage rates and elevated home prices impacted home demand and weighed on buyer's affordability. 

Housing starts and building permits declined in August from the previous month but housing completions rose, the U.S. Census Bureau and the U.S. Department of Housing and Urban Development jointly reported Tuesday. 

Building permits decreased 6.9% to 1.543 million annual adjusted rate in August from the revised July rate of 1.443 million, but 2.7% lower than the annual rate of 1.586 million a year ago. 

Single-family home permit increased 2% from the previous month to 949,000 and multi-family permits were at a rate of 535,000. 

Housing starts in August declined 11.3% from the previous month to 1.283 million and dropped 14.8% from a year ago rate of 1.505 million. 

Single-family housing start declined 4.3% from the previous month to 941,000 and the August rate for multi-family housing starts was 33,4000. 

Seasonally adjusted annual rate of starts in the West dropped 28.9% to 281,000, in the Midwest fell 7.5% to 160,000 but rose 1% 97,000 in the Northeast.  

Home completions in August rose 5.3% from the previous month to 1.406 million units and increased 3.8% from the annual rate of 1.355 million a year ago. 

Single-family home completion annual rate in August declined 6.6% from the previous month to 961,000 and multi-family rate was at 433,000. 

 

U.S. Indexes & Yields 

The S&P 500 index inched down 0.4% to 4,432.96 and the Nasdaq Composite decreased 0.6% to 13,626.27. 

The yield on 2-year Treasury notes hovered near 5.07%, 10-year Treasury notes inched slightly higher to 4.33% and 30-year Treasury bonds edged up to 4.41%. 

Crude oil increased $1.22 to $92.72 a barrel and natural gas prices increased 10 cents to $2.83 a thermal unit. 

The dollar index edged slightly lower to 105.04, the level last seen in March but higher than the low of 99.85 on July 13. 

 

U.S. Stock Movers 

Rocket Lab USA Inc dropped 18% to $4.12 after the company's uncrewed launched failed in the early hours of Tuesday morning. 

The company confirmed that its 41st Electron rocket launch off the coast of New Zealand failed after two minutes and 30 seconds in flight carrying the Acadia 2 satellite for Capella Space based in San Francisco. 

The company also said it plans to postpone its next space launch and will revise lower its third quarter revenue outlook. 

Rocket Launch had 19 successful launches in a row since May 2021 and is now the second most active rocket launch company in the U.S., trailing only to Space X owned by Elon Musk. 

Maplebear Inc, parent of Instacart delivery service provider, priced its initial public offering at $30 a share, at the upper end of its price range, and raise about $600 million.

The offering valued the company at $9.9 billion and and just days before PepsiCo agreed to invest $175 million in the company.   

Walt Disney Co decreased 3.2% to $82.23 after the company said in a SEC filing that it plans to double its investment in theme parks and cruise business to $60 billion over the next decade.  

 

Higher-for-longer Rate Worries Europe Markets

European markets hugged the flatline and investors stayed on the sideline ahead of rate decisions from several central banks. 

Market indexes in Germany and France edged higher but lacked direction after hawkish comments from the ECB officials reminded investors that the European Central Bank is ready to raise rates to cool inflation further even if that puts the economy into a recession. 

In London trading, the benchmark index edged higher on the hopes that the Bank of England is nearing its rate hike campaign after the rate decision this week. 

Inflation in the UK has been cooling over the last six months and hovering near 7%, but still significantly higher than 2% target. 

Investors are divided about the future direction of interest rates and there is a widespread belief that central banks are more likely to keep higher rates for longer after the rebound in crude oil prices. 

Brent crude oil prices jumped above $95 a barrel  for the first time since November and WTI crude in New York approached $93, the highest in a year. 

 

Europe Indexes & Yields

The DAX index decreased 0.6% to 15,639.26, the CAC-40 index declined 0.2% to 7,264.09 and the FTSE 100 index inched up 0.05% to 7,657.11.

The yield on 10-year German bonds increased to 2.70%, French bonds traded higher to 3.24%, the UK gilts edged up to 4.34% and Italian bonds rose to 4.49%.

The euro edged lower to a three-month low to $1.069, the British pound to $1.238 and the U.S. dollar fetched 89.65 Swiss cents.

Brent crude increased $1.12 to $95.56 a barrel and the Dutch TTF natural gas increased €0.60 to €35.67 per MWh.

 

Europe Stock Movers

Banks in Germany, France, UK and Italy traded higher for the second day in a row on the expectations of higher interest rates. 

Deutsche Bank, Commerzbank, BNP Paribas, Standard Chartered Bank, HSBC and Barclays advanced between 0.5% and 1.4%. 

Societe Generale SA declined for the second day in a row and extended two-day losses to 13% after the new chief executive lowered the bank's target returns over the next three years. 

MTU Aero Engines AG declined 1.9% to €164.65 and extended 2023 losses to 20% after the heavy-duty diesel engine maker issued a sales and earnings warning because of its expanded geared turbofan inspection program.

On September 13, the company estimated adjusted revenue between €6.1 billion and €6.3 billion and earnings before interest and taxes of €800 million.  

Lonza Group jumped 2.5% to CHF 434.90 a day after plunging as much as 15% on the worries about the company's medium term earnings outlook after the company said its chief executive Pierre-Alain Ruffieux will resign at the end of the month by mutual agreement.