Powell Opens Door to September Rate Cut, But Remains Cautious
Diverging Forecasts on Total Cuts This Year
Nvidia Earnings on the 27th, PCE Inflation Data on the 29th
The three major indices on the New York Stock Exchange showed mixed movements on the 25th (local time). After Jerome Powell, Chair of the U.S. Federal Reserve, delivered his speech at Jackson Hole, the previously heightened expectations for an interest rate cut have somewhat subsided, leading to increased caution among investors. The market's attention is now focused on Nvidia's earnings announcement and inflation indicators scheduled for release this week.
As of 11:41 a.m. on this day at the New York Stock Exchange, the blue-chip Dow Jones Industrial Average was down 235.44 points (0.52%) from the previous trading day, standing at 45,396.3. The S&P 500 Index, which centers on large-cap stocks, had fallen 6.28 points (0.1%) to 6,460.63, while the tech-heavy Nasdaq Composite Index was up 54.041 points (0.25%) at 21,550.576.
By stock, Nvidia and Intel were rising, supporting the Nasdaq as the only major index in positive territory. Nvidia was up 1.85%, and Intel had gained 1.27%. Apple was down 0.44%. Meta Platforms, the parent company of Facebook, was down 0.2%.
The market remains focused on Chair Powell's speech at the Jackson Hole Symposium held in Wyoming on the 22nd. He mentioned the risk of a slowdown in employment, stating, "Policy is in a restrictive area, and we may need to adjust our stance depending on changes in the baseline outlook and the balance of risks," suggesting the possibility of an interest rate cut. Powell's comments were more dovish than expected, prompting the rate futures market to raise the probability of a September rate cut to above 90% immediately after the speech. However, compared to last year's speech, in which he said, "The time for policy adjustment (rate cuts) has come and the direction is clear," this year's tone was more cautious. As a result, optimism about a rapid rate cut has faded in the market. Subsequently, the probability of a September cut dropped to the 70% range, but it has since rebounded to the 80% range. There are still divergent views regarding the total amount of cuts expected this year. The probability of a total 0.5 percentage point cut this year is reflected at 48.9%, while a total 0.75 percentage point cut is reflected at 33.6%.
Investors are also eyeing major events scheduled for this week. On the 27th, Nvidia will release its earnings after the market closes, and Dell and Marvell are set to announce their results on the 28th. On the 29th, the U.S. Department of Commerce will release the Personal Consumption Expenditures (PCE) Price Index, the inflation gauge most closely watched by the Federal Reserve. The core PCE Price Index, which excludes food and energy, is expected to have risen 2.9% year-on-year in July, up from 2.8% in June and marking the highest level in five months.
Daniel Murray, CEO of EFG Asset Management, commented, "The path forward will not be easy," adding, "The market generally welcomes more accommodative monetary policy, but the context is also important. There remains considerable uncertainty in both the macroeconomic and corporate environments."
Investors also paid attention to remarks regarding the U.S. government's increased stake in Intel. President Donald Trump posted on his self-created social networking service, Truth Social, referencing the Intel case and stating, "I would do deals like this all day long for our country." He was referring to the recent move by the U.S. government to become Intel's largest shareholder by securing about a 10% stake in exchange for providing subsidies to the American semiconductor company. Kevin Hassett, Chairman of the White House National Economic Council, explained in a CNBC interview that the Intel stake acquisition is part of a sovereign wealth fund initiative, adding, "Even if it's not this (semiconductor) industry, I am confident that more deals will be made in other industries someday."
U.S. Treasury yields were on the rise. The benchmark 10-year U.S. Treasury yield was up 2 basis points (1bp = 0.01 percentage point) from the previous trading day at 4.28%, while the 2-year yield was up 4 basis points at 3.73%.
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