Displaying items by tag: fed

Stronger-than-expected U.S. job growth could challenge recent market strategies that anticipated falling interest rates. Many investors had bet on steep Fed rate cuts, pushing up Treasury prices and weakening the dollar, but Friday's labor report, which exceeded expectations, may lead to fewer cuts. 

The dollar has already rebounded sharply, while Treasury yields have risen, reversing recent declines. Some investors may now need to reconsider positions in sectors like utilities, which thrived on expectations of lower yields. 

In the broader stock market, investors could chase further gains, though rising bond yields may temper the appeal of equities. Overall, the economic data points to more uncertainty in rate predictions and market behavior.

Finsum: We don’t expect the Fed to deviate from the planned path too much, but monitoring labor markets will be key to getting a fully informed decision about future rate cuts. 

On September 18, the Federal Reserve kicked off a new easing cycle by cutting interest rates by 50 basis points, its largest reduction in 16 years. However, instead of a smooth decline in bond yields, the 10-year Treasury yield actually rose afterward, highlighting the unpredictability of markets. 

The Fed has made it clear that its strategy will be a gradual one, adjusting based on economic data, with a neutral policy stance likely to be reached by 2026. Other major central banks, such as the ECB and BOE, are also approaching rate cuts cautiously to curb inflationary pressures.

 China, facing economic slowdowns, has continued cutting rates to spur growth in other sectors, despite ongoing issues in the property market.

Finsum:  As global central banks navigate rate cuts, market volatility is expected, especially with geopolitical risks and upcoming elections contributing to uncertainty.

As the Federal Reserve signals more rate cuts, long-term municipal bonds (munis) are becoming increasingly attractive due to their competitive yields, tax benefits, and potential for price appreciation. Historically, long-term munis tend to outperform when the Fed shifts from a hawkish to a dovish stance, benefiting from falling interest rates. 

These bonds also offer superior credit quality and often deliver higher tax-equivalent yields compared to taxable bonds, making them a strong alternative to Treasuries. With their longer durations, munis are particularly sensitive to rate changes, allowing for significant price gains in a falling rate environment. 

Moreover, the increased issuance of municipal bonds this year has created a favorable buying opportunity, especially as tax reforms and higher marginal rates could further boost demand for tax-exempt investments. 

Finsum: For investors looking to capitalize on rate cuts, long-term munis offer a compelling mix of yield, tax advantages, and credit stability

The ongoing unwinding of yen carry trades could lead to more turbulence in the markets this month, warns Kathy Lien of BK Asset Management. As U.S. yields drop and the dollar weakens, the yen is expected to gain strength, potentially triggering sell-offs similar to those seen in August. 

The practice of carry trading, where investors borrow in low-yielding currencies like the yen to invest in higher-return assets, is facing disruption due to Japan’s recent interest rate increases. Lien suggests that if stock markets experience significant downturns, the yen's value could continue to rise, reversing its longstanding undervaluation. 

This shift may impact asset prices globally in the coming years, with additional volatility likely as the U.S. economy faces growing pressures. September, often volatile for stocks, could see more dramatic market moves.

Finsum: This is one of the most important currency stories to watch in the coming weeks as rate cuts look to be very aggressive. 

Gold prices retreated slightly after hitting a record high in response to the Federal Reserve's half-point interest rate cut. Spot gold fell 0.4% to $2,560.29 per ounce after briefly reaching $2,592.39 earlier in the day, while U.S. gold futures closed up 0.2%. 

The Fed's decision to lower rates, which is expected to continue into next year, has pushed gold prices higher due to its reduced opportunity cost compared to interest-bearing assets. As bond yields rise and the dollar weakens, the demand for gold strengthens. Investors are awaiting further insights from Fed Chair Jerome Powell on the future direction of monetary policy. 

Meanwhile, with inflation still elevated, many are turning to gold as a hedge against eroding purchasing power. Silver prices rose 0.6%, while platinum remained steady, and palladium dropped 3.2%.

Finsum: Gold could be an important hedge if inflation comes back from the grave with interest rates quickly falling.