Market on High Alert: New York Stock Exchange Teeters on Brink Ahead of Crucial FOMC Decision
August Retail Sales Strong, But Rate Cuts Uncertain
US retail sales for August showed a 0.1% increase from the previous month, reaching $710.8 billion. This exceeded market forecasts, which predicted a 0.2% decrease. The positive data has made the interest rate outlook uncertain, with investors awaiting the Federal Reserve’s decision on rate cuts.
The New York Stock Exchange showed a mixed trend, with the Dow Jones Industrial Average closing at 41,606.18, down 15.9 points (0.04%) from the previous trading day. The S&P 500 index closed at 5,634.58, up 1.49 points (0.03%). The Nasdaq index, which is centered on technology stocks, closed at 17,628.06, up 35.93 points (0.2%).
Investors are expecting the Fed to make a “big cut” by lowering interest rates by 0.5 percentage points at the two-day Federal Open Market Committee (FOMC) meeting. According to the Chicago Mercantile Exchange (CME) FedWatch tool, traders in the federal funds futures market reflected a 63% chance that the Fed will cut rates by 0.5 percentage points. The possibility of a 0.25 percentage point cut was 37%.
However, the positive US retail sales data has made the interest rate outlook uncertain. CNBC diagnosed that although the U.S. economy is healthy, the slowdown is becoming more severe and employment indicators are weak, so investors and the Fed’s predictions may differ.
Adam Turnquist, chief technology strategist at LPL Financial, stated, “A half-percentage point cut could mean the Fed is further softening its view on the labor market, which is a more concerning signal. There could be a pretty big gap between what the market expects and what the Fed is projecting.”
International oil prices rose on expectations that the U.S. Federal Reserve will cut its benchmark interest rate, robust U.S. retail sales, and the aftermath of Hurricane Francine and heightened tensions in the Middle East. On the New York Mercantile Exchange (NYMEX), the U.S. West Texas Intermediate (WTI) crude oil for October delivery closed at $71.19 per barrel, up $1.10 (1.6%) from the previous trading day.
Treasury yields also rose. In the New York bond market, the 10-year US Treasury yield rose 1.9bp (bp=0.01%p) from the previous day to 3.649%. The 2-year Treasury yield rose 3.6bp to 3.59%. Bond yields move inversely to prices.
However, the international gold price fell due to profit-taking sales. Gold for December delivery, the center of trading at the New York Mercantile Exchange (COMEX), closed at $2,592.4 per ounce, down $16.5 (0.6%) from the previous day. Analysis suggests that it was an environment where profit-taking sales were easy to come out, as it hit a record high against the backdrop of observations of a U.S. interest rate cut.