The AUD is the strongest and the USD is the weakest as the NA session begins

As the North American session begins, the AUD is the strongest followed closely by the GBP, and the USD is the weakest. The Federal Reserve will meet on Tuesday and again on Wednesday before announcing their rate decision on Tuesday at 2 PM ET. A press conference will commence at 2:30 with Fed Chair Powell. The Fed will also release its so-called “dot-plot” of rate projections, and the central tendencies which are the compilation of member expecatations for GDP, inflation and employment. ALL will be combed over in this time of transition. How big or how small does the Fed go?

Since Thursday, the odds of a 50 bp cut has gathered momentum and it is now virtually a 50-50 chance (well actually 65 to 35 for 50 – my mistake) .

The WSJ’s Timiraos starting things off last week (Thursday), saying that the Fed had a dilemma between going big or going small – opening the door for the 50.

Later former NY Fed Dudley said that 50 is needed. Former Fed Mester and Esther George also said they could see 50 bp in cuts. Former FOMC Board member Ferguson said they could go either way. Former Cleveland Fed president Bullard said 25 bps is needed, as did Former Dallas Fed’s Fisher (before the Thursday shift).

The BOE and the BOJ also meet this week with both expecting to keep rates unchanged with the focus on the future path for rates. For the BOE the tilt is to the downside (the BOE cut 25 bps at its last meeting). For the BOJ, markets will be focused on the potential for higher rates (they started to raise rates at its last meeting).

PS Japan and Chiina were off today for holiday(s).

US stocks are trading mixed in pre-market trading today. The S&P and Nasdaq had perfect weeks with 5 gains in 5 days. Both are lower in pre-market trading. The Dow is higher currently.

US yields are lower by about 1-3 basis points at the start of the trading day. The markets have been pushing rates lower and that is also helping 30-year mortgages which moved down to 6.20%. They were down from 7.22% from April.

Central Bank comments over the weekend and today (REMEMBER: the Fed is in the quiet period):

The ECB met last week, and lowered rates. Like the prior cut, the ECB seems to be “predetermined” (or maybe strongly leaning) to keep rates unchanged at the next meeting (although they say otherwise.

• ECB policymaker Peter Kažimír indicated that the central bank is likely to wait until December for the next rate cut, stating that it would require a significant change in the economic outlook for a cut to occur in October. With limited new information expected before the October meeting, he emphasized there is no urgency to lower rates and suggested that the safest approach is to wait for a clearer economic outlook.
• ECB Vice President Luis de Guindos stated in Madrid that the European Central Bank’s projections indicate inflation will hover around 2% by the end of 2025. He expressed concern about persistent services inflation and noted that the ECB does not have a predetermined path for interest rates, emphasizing that decisions will be made on a meeting-by-meeting basis.
• ECB Chief Economist Philip Lane stated that recent data on wages and profits have aligned with expectations. He noted that negotiated wage growth is expected to remain high and volatile for the rest of the year. Lane emphasized that a gradual approach to reducing policy restrictiveness would be suitable if future data aligns with the ECB’s baseline projection, while also highlighting the need to maintain flexibility regarding the pace of policy adjustments.

The Bank of Canada cut rates by 25 basis points at the last meeting:

• Bank of Canada Governor Tiff Macklem, in an interview with the Financial Times, raised the prospect of faster rate cuts, reflecting his growing concerns about the state of the labor market. Macklem pointed out that the labor market shows signs of downside risks, which could impact the broader economic outlook. He emphasized that as inflation gets closer to the Bank’s target, there is a heightened need to be vigilant about potential downside risks, suggesting a more cautious approach may be warranted in future monetary policy decisions

The WSJ’s Greg Ip weighed in with his opinion on the Fed saying:

• The Federal Reserve should cut interest rates by 50 basis points rather than the expected 25 basis points at the upcoming FOMC meeting on September 18. Ip suggests that the primary focus should be on where rates need to be, which he believes is much lower than their current level. He asserts that inflation is under control and there is little indication of an imminent recession. However, he cautions that waiting for concrete signs of a downturn could be risky, implying that a more aggressive rate cut would better preempt potential economic challenges.

A snapshot of the other markets as the North American session begins shows:

• Crude oil is trading up $0.52 and $69.72. At this time yesterday, the price was at $68.30
• Gold is trading up $4.93 or 0.18% at $2567.00. At this time yesterday, the price was $2517.84
• Silver is trading up $0.16 or 0.53% and $29.99. At this time yesterday, the price is at $28.75
• Bitcoin is trading at $58,336. At this time yesterday, the price was at $58,026
• Ethereum is trading at $2371.50. At this time yesterday, the price was at $2348.70

In the premarket, the snapshot of the major indices are mixed after gains on Friday. Both the S&P and NASDAQ are working on a five-day win streak

• Dow Industrial Average futures are implying a gain of 100.23 points. Friday, the index rose 297.01 points or 0.72% at 41 393.78
• S&P futures are implying a decline of -4.71 points. Friday, the index rose 30.26 points or 0.54% at 5626.02
• Nasdaq futures are implying a a decline of -83.22 points. Friday, the index rose 114.30 points or 0.65% at 17683.98

Yesterday, the small-cap Russell 2000 was higher by 53.06 points or 2.49% at 2182.49

European stock indices are trading little changed to start the trading week:

• German DAX, -0.25%
• France CAC, -0.04%
• UK FTSE 100, +0.08%
• Spain’s Ibex, +0.14%
• Italy’s FTSE MIB, -0.04% (delayed 10 minutes).

Shares in the Asian Pacific markets Japan and China were close for holidays.

• Japan’s Nikkei 225, banking holiday
• China’s Shanghai Composite Index, banking holiday
• Hong Kong’s Hang Seng index, +0.31%..
• Australia S&P/ASX index, +0.27%.

Looking at the US debt market, yields are little changed:

• 2-year yield 3.546%, -2.9 basis points. At the same Friday, the yield was at 3.597%
• 5-year yield 3.407%, -1.7 basis points. At this time Friday, the yield was at 3.432%
• 10-year yield 3.636%, -1.3 basis points. At this time Friday, the yield is at 3.653%
• 30-year yield 3.962%, -1.5 basis points. At this time Friday, the yield is at 3.976%

Looking at the treasury yield curve,

• The 2-10 year spread is +8.9 basis points. At this time yesterday, the yield spread was +6.0 basis points.
• The 2-30 year spread is less 41.5 basis points. At this time yesterday, the yield spread was +38.4 basis points.

In the European debt market, the 10 year yields are mostly lower:

This article was written by Greg Michalowski at www.forexlive.com.