The super-sized Fed cut climbs back onto the table

A look at the day ahead in European and global markets from Kevin Buckland

European traders who went to bed thinking a quarter-point Fed rate cut was a lock for next week may well have had a rude awakening this Friday the 13th with the odds of a halving of very large point back to almost a coin. throw

It began with separate reports in the Financial Times and the Wall Street Journal, which both said the September 18 decision remained “a close call.” Then former New York Fed president Bill Dudley, who remains highly influential, told an event in Singapore that there was “a strong case” for a 50 basis point cut.

This put the dollar on the defensive as it slipped back to this year’s lowest level against the yen and lost further ground against the euro. Two-year Treasury yields were back below 3.6% in Asian hours.

Gold hit a new all-time high at $2,570.

Reactions in equity markets were mixed. Hong Kong’s Hang Seng rose more than 1 percent and Australian shares also rose.

But for the Nikkei, a decline was almost simultaneous with a much stronger yen. South Korea also fell, and shares in mainland China struggled. It’s worth noting that all three of these markets are heading into a long holiday weekend, with South Korean traders not returning to work until next Thursday.

A very early look at pan-European STOXX 50 futures was positive, showing up 0.3%.

There is little data in Europe on Friday to distract from Fed-centric speculation, which raised the chance of a 50bps cut to 43% from 28% in Asian morning. Some CPI prints continue to appear, including from France and Greece. Also due are data on euro area industrial production.

There are no central bank speeches on the calendar, with the Fed and the Bank of England – which will announce policy next Thursday with no change expected – during periods of gridlock. Meanwhile, the ECB has mostly moved into the rearview mirror after Thursday’s well-telegraphed rate cut and no clear guidance from President Christine Lagarde on when to expect the next one.

Key developments that could influence markets on Friday:

-France, Greece, Poland, Slovakia CPI (August)

-Industrial production in the euro zone (July)

(By Kevin Buckland; Editing by Edmund Klamann)