Wall Street thrives on cheaper money from the Fed; Benchmarks close near to all time highs

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US stocks on Wall Street shot higher yet again in a turbulent week so far, crowded by geopolitical and economic events into month-end. The benchmarks ended the say towards their best levels with the S&P 500 closing at another all-time high following the Federal Reserve’s decision to cut interest rates for a third consecutive time since July. The market took the statement as hawkish, although meaning that the Fed will leave the door open for further rate cuts should the US economy warrant. 

Subsequently, the S&P 500 index ended higher by nearly 10 points, or 0.3% at 3,047, which marks its second record this week and its 15th of 2019. The Dow Jones Industrial Average, DJIA tallied up 115 points, or 0.4%, at 27,187, ending close to its record highs. The Nasdaq Composite Index ended the session higher by 0.3% at 8,304, just a stone’s throw from a record close.

The Federal Reserve cut the benchmark interest rates by 25 basis points, to a range of 1.5% to 1.75%, from 1.75% to 2%. The main takeaways came in the statement and from Chairman Powell’s presser. 

Change in a statement:

The Committee will continue to monitor the implications of incoming information for the economic outlook as it assesses the appropriate path of the target range for the federal funds rate.

Vs prior:

The Committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective.

Key takeaways from the Fed

  • Rates lowered to range of 1.50%-2.00%.
  • Markets priced in a 97% chance of a cut before the decision.
  • Prior range was 1.75%-2.00%.
  • Uncertainties remain, will assess appropriate rate path.
  • George and Rosengren wanted no change.
  • Change of wording in the statement says it will monitor incoming info “as it assesses the appropriate path” for the target range.
  • Sets IOER at 1.55%, as expected.
  • Economic activity has been rising at a moderate rate, the same as prior.
  • Repeats that job gains have been solid, on average, in recent months, and the unemployment rate has remained low.
  • Household spending has been rising at a strong pace vs ‘appears to have picked up’.

US data, food for thought

Meanwhile, there was plenty to digest on the economic front today, as a prelude into the closing data events for the week, which will include Chinese and US Manufacturing PMIs as well as US Nonfarm Payrolls. 

Firstly, US Q3 GDP beat the market’s expectation of a 1.6% QoQ rise and came in at 1.9%. “Growth was once again supported by strong consumer spending, which rose by 2.9% q/q, with household spending on big ticket items also rising,” analysts at ANZ Bank explained. 

Ahead of Friday’s US Nonfarm Payrolls numbers, we had the ADP Research Institute’s employment change data. this climbed by 125k in October, against expectations for a 110k read – September’s release was revised down from 135k to 93k. Lastly, the US Core PCE climbed at a 2.2% annual pace in the third quarter, meeting the market’s expectations – ” This was up from 1.9% in Q2 and is consistent with the Federal Reserve’s 2.0% target. The Core PCE measure is the Federal Reserve’s preferred measure of inflation,” analysts at ANZ added. 

Key manufacturing data ahead:

  • Trade war with China suffocating US manufacturers – GT

DJIA levels

 

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