96% Probability of 0.25 Percentage Point Rate Cut at FOMC on the 17th
Trump's "U.S.-China Trade Talks Going Smoothly" Statement Also Boosts Investor Sentiment
August Retail Sales and Weekly Unemployment Claims to Be Released This Week
On September 15 (local time), all three major indices on the New York Stock Exchange rose in unison. Investor sentiment was buoyed by expectations that the Federal Open Market Committee (FOMC) scheduled for this week would resume interest rate cuts. In addition, positive remarks by U.S. President Donald Trump, who hinted at progress in U.S.-China trade negotiations and an agreement on the sale of TikTok, also served as favorable factors. Alphabet, the parent company of Google, surpassed a market capitalization of $3 trillion for the first time during intraday trading.
As of 11:26 a.m. on the same day at the New York Stock Exchange, the blue-chip Dow Jones Industrial Average was up 8.6 points (0.02%) from the previous trading day, standing at 45,842.82. The S&P 500 Index, which focuses on large-cap stocks, rose 30.33 points (0.46%) to 6,614.62, and the tech-heavy Nasdaq Index climbed 172.194 points (0.78%) to 22,313.297.
By stock, Alphabet, the parent company of Google, rose 2.98%, surpassing a $3 trillion market capitalization for the first time. Optimism about artificial intelligence (AI), along with a court ruling earlier this month that Google does not need to forcibly sell its Chrome browser, contributed to the stock's rise. With this, Alphabet became the fourth company to surpass a $3 trillion market capitalization, following Nvidia, Microsoft, and Apple. Tesla soared 6.6% after news that CEO Elon Musk had purchased $1 billion worth of company shares. This stock purchase by CEO Musk is the first public buyback since 2020 and the largest ever. Nvidia was down 0.36%.
News of progress in U.S.-China trade negotiations bolstered investor sentiment. President Trump announced on his self-created social networking service, Truth Social, "The large-scale trade meeting between the United States and China held in Europe went very smoothly and will be concluded soon," adding, "Negotiations related to a 'certain' company, which our country's young people desperately want, have also been finalized. They will be very pleased." He continued, "I will have a call with President Xi (Xi Jinping, President of China) on Friday (the 19th)," emphasizing, "The relationship between the two countries remains very strong."
The "certain company" President Trump referred to is TikTok. Under the so-called "TikTok Ban Act" passed by the U.S. Congress in April last year, TikTok faced the risk of being suspended in the U.S. if its Chinese parent company ByteDance did not sell its U.S. operations. This latest negotiation is interpreted as having reached an agreement on the sale.
The two countries held their fourth high-level trade talks in Madrid, Spain, starting the previous day and concluded negotiations on this day. The United States also hinted at the possibility of extending the "tariff truce." Both countries agreed to maintain their respective tariff rates, each reduced by 115 percentage points, until November 10. The next round of negotiations is scheduled to take place in a month.
The biggest concern for investors this week is the September FOMC meeting, which will be held on the 16th and 17th. Due to recent weak employment data, the likelihood of an interest rate cut is considered high. The market currently reflects a 96.2% probability that the Federal Reserve will cut the benchmark interest rate, currently at 4.25-4.5% per year, by 0.25 percentage points. In contrast, the possibility of a "big cut" (a 0.5 percentage point rate cut), which President Trump has called for two days in a row, is only 3.8%. The probability of a total 0.75 percentage point cut by the end of the year is 74.9%.
If interest rate cuts resume, there is growing optimism that investor sentiment, fueled by the AI boom, will strengthen and the stock market rally will continue.
However, some analysts point out that attention should be paid to Federal Reserve Chair Jerome Powell's remarks on the future path of interest rates during his press conference. Chris Larkin, Managing Director at Morgan Stanley E*TRADE, said, "The focus will now be on how aggressively the Fed will act," adding, "The market may receive short-term signals from Chair Powell's press conference." He also noted, "While the Fed is currently focused on jobs, it may remind the market that it has not forgotten the other half of its mandate-price stability."
Major economic indicators are also scheduled to be released this week. On the 16th, August retail sales data will be released, and on the 18th, weekly initial jobless claims will be announced.
Government bond yields are on the decline. The yield on the 10-year U.S. Treasury, the global benchmark for bond yields, fell 2 basis points (1bp = 0.01 percentage points) from the previous day to 4.03%. The yield on the 2-year U.S. Treasury, sensitive to monetary policy, also dropped 2 basis points from the previous day to 3.53%.
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