uploaded image

RBA rate decision, Fed Chair Powell speech, U.S. PCE Inflation: Macro Week Ahead

By:Ilya Spivak

Markets cheered as the Fed cut rates, but will they find the fuel to keep going?

  • The Australian dollar will be vulnerable if the RBA begins to entertain rate cuts.

  • Investors hope a Fed Chair Powell speech will inform the 2025 policy outlook.

  • U.S. PCE data might revive worries about the pace of disinflation.

Stock markets pushed higher last week as the Federal Reserve gave traders the much-hoped-for 50-basis-point (bps) rate cut they were pining for. The central bank also promised 50bps in further easing this year and 100bps in 2025, which registered broadly in line with the markets’ thinking ahead of the announcement.

The bellwether S&P 500 stock index and its tech-oriented counterpart the Nasdaq 100 added 2.4% and 2.6% respectively, marking a slight slowdown from the prior week’s gains. Treasury yields inched higher as the markets digested the Fed’s messaging, gold rose and the U.S. dollar fell against most major currencies save the Japanese yen.

Here are the macro waypoints likely to shape what comes next.

Reserve Bank of Australia policy meeting


Australia’s central bank is expected to keep its target interest rate unchanged at 4.35% at this week’s policy meeting. Go Michele Bullock and her colleagues have been reluctant to join the rate cut push embraced by most central banks in the major economies. They continue to prioritize a post-COVID fight against inflation.

For their part, the markets have priced in 12bps in cuts by December, implying a 50/50 chance of a standard-issue 25bps reduction before the calendar turns to 2025. Traders have penciled in 95bps in cuts next year. This might turn out to be too timid as the economy hits the skids.

Purchasing managers’ index (PMI) data from Judo Bank and S&P Global showed economic activity shrank in September as the pace of contraction in the manufacturing sector accelerated while growth on the services side slowed to a near standstill. If the RBA softens its messaging and seems more open to easing, the Australian dollar is likely to fall.


ASX 30D Cash Rate Futures-Implied RBA Outlook.png
ASX

Federal Reserve Chair Powell’s speech


The Fed delivered nearly everything the markets were hoping for with last week’s tectonic policy update. In doing so, it has seemingly locked itself into a commitment to cut rates by 25bps at each of its upcoming meetings in November and December. This probably means that speculation is now firmly focused on 2025.

With that in mind, traders will be keen to hear from Fed Chair Jerome Powell, who is scheduled to speak at the 2024 U.S. Treasury Market Conference. Most critically, they will want to get a sense of just how worried the central bank has become about the trajectory of U.S. economic growth.

Powell will no doubt try to appear reassuring, echoing his performance at the press conference following last week’s policy announcement. The risk now facing markets is that an optimistic view of the economy coupled with any hesitation to declare victory over inflation may trim next year’s rate priced-in rate cut tally. Wall Street may not like that.

Futures-Implied 2024-25 Fed Outlook vs. S&P 500.png
CME

U.S. personal consumption expenditure (PCE) inflation data


The Fed’s favored measure of inflation is expected to show headline inflation continued to cool in August, falling to 2.3% year-on-year, the lowest since February 2021.

However, the core measure excluding volatile food and energy prices—the focus for central bank officials—is expected to rise to 2.7%.

That is eye-catching divergence. If expectations are broadly met, the result would amount to the highest reading on core inflation in four months and the largest rise in the 12-month growth rate since September 2022. Such a result might work against next year’s rate cut bets, pulling upward on longer-dated yields and lifting the U.S. dollar.

US PCE Price Index Y:Y
BEA


Ilya Spivaktastylive head of global macro, has 15 years of experience in trading strategy, and he specializes in identifying thematic moves in currencies, commodities, interest rates and equities. He hosts Macro Money and co-hosts Overtime, Monday-Thursday. @Ilyaspivak

For live daily programming, market news and commentary, visit tastylive or the YouTube channels tastylive (for options traders), and tastyliveTrending for stocks, futures, forex & macro. 

Trade with a better brokeropen a tastytrade account today. tastylive, Inc. and tastytrade, Inc. are separate but affiliated companies. 


Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Related Posts

tastylive content is created, produced, and provided solely by tastylive, Inc. (“tastylive”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, digital asset, other product, transaction, or investment strategy is suitable for any person. Trading securities, futures products, and digital assets involve risk and may result in a loss greater than the original amount invested. tastylive, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastylive is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparisons, statistics, or other technical data, if applicable, will be supplied upon request. tastylive is not a licensed financial adviser, registered investment adviser, or a registered broker-dealer.  Options, futures, and futures options are not suitable for all investors.  Prior to trading securities, options, futures, or futures options, please read the applicable risk disclosures, including, but not limited to, the Characteristics and Risks of Standardized Options Disclosure and the Futures and Exchange-Traded Options Risk Disclosure found on tastytrade.com/disclosures.

tastytrade, Inc. ("tastytrade”) is a registered broker-dealer and member of FINRA, NFA, and SIPC. tastytrade was previously known as tastyworks, Inc. (“tastyworks”). tastytrade offers self-directed brokerage accounts to its customers. tastytrade does not give financial or trading advice, nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of tastytrade’s systems, services or products. tastytrade is a wholly-owned subsidiary of tastylive, Inc.

tastytrade has entered into a Marketing Agreement with tastylive (“Marketing Agent”) whereby tastytrade pays compensation to Marketing Agent to recommend tastytrade’s brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastytrade. tastytrade and Marketing Agent are separate entities with their own products and services. tastylive is the parent company of tastytrade.

tastycrypto is provided solely by tasty Software Solutions, LLC. tasty Software Solutions, LLC is a separate but affiliate company of tastylive, Inc. Neither tastylive nor any of its affiliates are responsible for the products or services provided by tasty Software Solutions, LLC. Cryptocurrency trading is not suitable for all investors due to the number of risks involved. The value of any cryptocurrency, including digital assets pegged to fiat currency, commodities, or any other asset, may go to zero.

© copyright 2013 - 2024 tastylive, Inc. All Rights Reserved.  Applicable portions of the Terms of Use on tastylive.com apply.  Reproduction, adaptation, distribution, public display, exhibition for profit, or storage in any electronic storage media in whole or in part is prohibited under penalty of law, provided that you may download tastylive’s podcasts as necessary to view for personal use. tastylive was previously known as tastytrade, Inc. tastylive is a trademark/servicemark owned by tastylive, Inc.