Rise and shine everyone

What a day, yesterday! The Fed comes out and surprises with a Summary of Economic Projections, which was quite different from the consensus view. Keeping aside the fact that I expected them to project 3 cuts, most major analysts thought the same. So now the Fed projects 2 cuts for next year instead of 4. Moreover, they project inflation to move higher for the year, particularly at the headline level.

This morning we also heard from the Bank of Japan. The Bank of Japan (BOJ) left its target rate unchanged at 0.25%, as expected, with Tamura being the sole dissenter, proposing a rate increase to 0.5%. The BOJ’s broad policy review emphasized flexibility in future policy measures, aiming to maximize positive effects while minimizing side effects. Following the decision, USD/JPY rose above ¥155, while JGB yields pared earlier gains. Hawkish dissent and dovish comments from Gov. Ueda, who expressed caution over future rate hikes, sent mixed signals. The probability of a January rate hike has decreased from 70% to 50%.

Meanwhile, Sweden cut rates by 25bps, while Norway held steady with no surprises.

And we have the Bank of England’s rate decision coming up - the consensus is for a hold, particularly after the recent budget decisions and inflation readings.

In broader market action, Asian equities mirrored Wall Street losses as the Nikkei 225 fell 1.4% to 38,522, weighed down by weaker-than-expected Tokyo condo sales (-18.7% YoY) and recessionary GDP figures in New Zealand. Meanwhile, China reiterated its accommodative monetary stance, with banks raising mortgage rates for the first time since 2021, ahead of the PBOC’s loan prime rate decision this Friday. European equities also sold off after a hawkish Fed rate cut, with the FTSE100 hitting a one-month low as UK gilts surged, pricing in elevated inflation risks.

Elsewhere, Bitcoin fell below $100K, and corporate earnings took the spotlight with Micron’s weak guidance weighing on chip stocks globally. Key updates include Nike and FedEx earnings later today, and Japan’s CPI figures on Friday, expected to reflect continued inflationary pressures. Meanwhile, political tension is rising in the US as odds of a government shutdown this weekend sharply increase.

Chart of the Day

Quite the reaction to the Fed!

Calendars

(news taken from Reuters, FT, Bloomberg; Calendar from Trading Economics)