Markets will be focused on what the Fed does this afternoon

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Published Date 9/18/2024

This afternoon is the widely anticipated FOMC rate cut. It will be the first cut in four years following the pandemic, even as the decision gets closer by the minute there remains uncertainty about the amount. Market odds put the chance of a half-point cut at just over 50%, while most economists forecast a smaller move. Forecasters largely anticipate the FOMC will reduce rates by a quarter point to a range of 5% to 5.25%, though economists at JPMorgan Chase expect a bigger, half-point move. The Fed has a decision to make today, based not only on the size but when, consensus now is 100 bps by the end of the year, that would mean one cut will be 50 bps.

Weekly MBA mortgage applications jumped 14.2% last week, purchase apps +5.4%, re-finances +24.2% from the prior week. It is the fourth week applications have increased.

August housing starts better than forecasts; 1.356 million against 1.30 million estimates. Building permits at 1.475 million against 1.410 estimates million and July revised from 1.396 million to 1.406 million. Permits rose by 4.9% the highest in five months and above market estimates, preliminary estimates showed. Approvals of units in buildings with five units or more advanced by 8.4% to a rate of 451 thousand and single-family authorizations went up by 2.8% to 967 thousand. Across different US regions, there were increases in permits in the Northeast (3.5% to 146K), the Midwest (12.5% to 207K), and the South (6% to 819K), while decreases were reported in the West (-1.6% to 303K).

At 9:30 am the DJIA opened +15, NASDAQ +36, S&P +5. 10 year note at 9:30 am +3 bps at 3.68%. FNMA 5.5 30 year coupon at 9:30 am -7 bps from yesterday’s close and -10 bps from 9:30 am yesterday.

Looking for quiet now ahead of this afternoon when there will be an increase in volatility, some investors and traders will be disappointed in what occurs, those betting on 50 and those betting on 25, will set up wild movements. As important as the amount of the cut is, it is equally important what Powell will say. Currently the bond market has discounted 25 bps. This morning the CME FedWatch shows traders pricing in a 65% chance of a half-point cut and 35% odds of a quarter-point move. Technically, the 10 year note has support at 3.70%, a close above that will project to 3.75%.

Source: TBWS

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