Morning quote: hanging on to the Fed

A look at the day ahead in European and global markets from Wayne Cole.

It’s finally decision time for the US Federal Reserve, and the market is split on whether to cut its key interest rate by 25 or 50 basis points, although funds futures took a bid this morning and now imply a 59% chance of a huge move. .

The analyst community is more cautious, with 92 of 101 forecasters polled by Reuters leaning 25 bps. JPMorgan is notable for predicting a bigger cut, arguing that rates are a full percentage point too restrictive given the stage of the economic cycle.

With inflation slowing, a sizeable cut would be needed just to stop real interest rates from rising. Moreover, the next meeting is not until early November, which is why markets have 114 basis points of easing until Christmas and another 142 basis points for 2025.

That meeting will also take place just two days after the presidential election, making for a politically charged move at the time. Speaking of the election, Republican candidate Donald Trump is safe after the FBI foiled another apparent attempt on his life.

Betting site PredictIt continues to have Trump at 47 cents and Kamala Harris down a cent at 56 cents.

All this, combined with holidays in Japan and China, makes for a cautious start in Asian trade, with most equity markets little changed. The dollar was fixed at 140.50 yen as the Japanese currency continues to lead the charge higher. It’s down the most this year, so it has the most room for a rally. A break of 140.00 would pave the way to a low from last January at 127.215.

Sentiment was not helped by data on Chinese retail sales, industrial production and house prices over the weekend, which only underscored the need for more economic stimulus from Beijing.

Among other central banks meeting this week, the Bank of England is expected to keep its policy rate at 5.0% by all 65 analysts polled, although the market implies a 31% chance of a surprise cut. Wednesday’s inflation numbers should help refine the odds.

The Bank of Japan is seen as certain to hold on Friday, but could lay the groundwork for tightening in October. South Africa’s central bank will begin its easing campaign this week, while policymakers in Norway are seen on hold.

Key developments that could influence markets on Monday:

– Germany wholesale price inflation, EU trade balance

– New York Federal Reserve Manufacturing Index

– Three-month and six-month US Treasury auctions

(By Wayne Cole; Editing by Christopher Cushing)