Rise and shine everyone.

Today is the weekly and quarterly Options Expiry, so markets could a little more volatile.

The S&P 500 hit an all time high yesterday after shrugging off the post-FOMC sell off, but then started to move lower into the close. After the close, we got earnings from FedEx which came out much worse than expected and the stock fell -11% after-hours.

FedEx (FDX) reported a significant drop in quarterly profit and lowered its full-year revenue forecast, as customers opted for slower, more affordable delivery services over pricier, faster options. This shift has put pressure on profits for both FedEx and its competitor, UPS

CEO Raj Subramaniam noted weaker-than-expected industrial demand, particularly in priority shipments between businesses—a highly profitable segment for FedEx. He also highlighted that the recent Federal Reserve rate cuts underscore the challenging economic environment.

Yesterday was also the Bank of England Rate decision, and as expected they held rates steady. However, the vote shifted a little with one more member advocating for a cut, so a more dovish tilt.

This morning we got the PBoC’s decision to leave China’s 1-year and 5-year Loan Prime Rate steady. There are discussions that the government is looking into further measures to shore up the property market. And finally, the Bank of Japan Rate Decision - the policy rate left unchanged at 0.25% as expected. However, the BoJ made adjustments to their statement and had a less hawkish stance. More below.

BoJ Meeting Update

• Interest Rate Decision: The BOJ left its target rate unchanged at 0.25%, in line with expectations.

• Policy Unanimity: The decision to maintain the current policy stance was reached unanimously (9-0 vote).

• Economic Growth: The domestic economy is projected to continue growing above its potential rate, with an upgraded assessment of consumer spending.

• Vigilance on Markets: The BOJ stressed the need to be vigilant about the impact of financial and foreign exchange market volatility on Japan’s economy and prices, noting high levels of uncertainty.

• FX Impact on Prices: Exchange rate movements are increasingly affecting prices compared to the past.

• Inflation Outlook:

  • Underlying CPI inflation is expected to gradually rise due to improving output gaps and higher inflation expectations from stronger wage-price cycles.

  • Inflation is projected to align with the BOJ’s price stability target in the latter part of the forecast period.

• Removal from September Statement: The BOJ removed a paragraph stating that future rate hikes and adjustments to monetary accommodation would depend on realizing the economic and price outlook presented in the July 2024 report.

The Nikkei spiked, while the JPY weakened, with the USD/JPY now inching towards 145.

Chart of the Day - BofA’s Flow Show

BofA’s Hartnett says ‘Wall Street loves “panic cuts” when there’s no panic’ and the ‘Fed wants to slash real rates to prevent recessionary small biz sector cutting jobs.’

Note the flows out of Utilities, which are often bond proxies. I suspect, this is because quite a few asset managers are expecting the curve to bear steepen, i.e., rates at the long end will go up. I expect that too, let’s see how this plays out.

Calendars

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