Bitcoin leadership and record high bond yields ahead of Fed’s rate decision

Nasdaq, the R&P 500 and Russell 2000 equity indices were off marginally as markets braced for tomorrow’s Fed interest rate decision. Bitcoin rose 1.2% to $27,177, continuing a recent rally. Ten year bond yields rose to 4.37%, a rate last seen in June 2008. Oil and the dollar, recently strong markets, were unchanged, as were Gold and Silver.

Bottom-line: risk-off.

TODAY’S MAJOR NEWS

No rate hike tomorrow, but Fed expected to talk tough

The Federal Reserve’s monetary policy committee begins two days of meetings this morning to discuss its next steps. Fed Chair Jerome Powell has done a masterful job of producing unanimous decisions over the past couple of years, but that’s likely to become more challenging going forward. The doves were willing to go along with aggressive rate hikes when inflation was high, but now it may be more difficult to keep them onboard with headline inflation getting closer to the 2% mandate.

Powell and the hawks on the committee  are more concerned about pivoting too soon, as the central bank did in 1980. He stated repeatedly in the past that they’d rather error on the side of too high for too long than pivot too soon. Trader’s believe that achieving unanimous agreement will be to pause the rate hikes this meeting, but to add a hawkish policy statement to keep the door open for another rate hike and rates holding strong through much of next year.

Auto workers strike expanding if no deal reached

The United Auto Workers union says that it will expand its strike against the big three automakers if no agreement is reached by Friday – seeking to end the conflict soon by expanding strike action early. That may be what the automakers want, to test the union’s ability to finance a strike the Big Three at the same time. The union pays its workers to walk the picket line, so there is a limit to how long it can take an extended strike for workers across so many plants. That’s why the union typically strikes at just one company at a time. Regardless, the strike is expected to provide a drag for the US economy as it expands, which could contribute to the Fed’s expected decision to pause its rate hikes at this week’s policy meeting.

Housing starts tumbled in August

• US homebuilding hit a three-year low in August, but a jump in permits suggested new construction suggest new supply is coming according to data from the Commerce Department
• Homebuilders' confidence slumped to a five-month low in September, with builders cutting prices to tempt buyers
• Housing fell 11.3% to a seasonally adjusted annual rate of 1.283 million units last month, the lowest level since June 2020
• Data for July was revised lower to show 1.447 million starts
• Single-family housing starts dropped 4.3% to a rate of 941,000 units last month

US firms turn their backs on China?

• A recent survey of 325 US firms in China revealed that optimism about investment in China continues to decline
• 48% held a negative outlook about their developments in China over the next five years
• 40% indicated that they were shifting supply chains and investments away from China, up from 34% a year ago
• 33% indicated that China’s policies and regulations toward foreign companies were less friendly than a year ago
• 17% of the surveyed firms indicated that China was their first option for investment in the global market, down from 27% in 2021

TODAY’S MAJOR MARKETS

Equity markets down in lackluster trading

• Equity markets fell in lackluster trading, with the S&P 500, Nasdaq and Russell 2000 all off 0.3%
• Foreign markets were weaker overnight, with the Nikkei 225 down 0.9%, the DAX off 0.4% and the FTSE 100 unchanged
• The VIX, Wall Street’s fear index, was largely unchanged at 14.4

Record high bond yields

• 2-year and 10-year bonds rose sharply to 5.12% and 4.37% respectively
• The dollar index was unchanged at 105.2
• Versus the dollar, the Yen fell 0.2%, the Euro wad off 0.1% and Sterling was unchanged

Oil holds recent highs

• Crude oil prices were unchanged at $91.4 per barrel
• Spot gold and silver prices were unchanged at $1,953 per ounce and $23.5 per ounce
• Grain and oilseed prices were mostly weaker as the US Midwest harvest gains momentum

Analysis by Arlan Suderman, Chief Commodities Economist: Arlan.Suderman@StoneX.com 

Market outlook by Paul Walton, Financial Writer: Paul.Walton@StoneX.com