Mini Program: Daily summary of investment bank/institutional views

1. Citi: The Fed turns its attention to the labor market, and employment data will become an important reference

Jabaz Maathai, head of G10 currency rates and foreign exchange strategy at Citi, said the Fed's shift to a weak labor market means that jobless claims and the unemployment rate will become increasingly prominent as traders try to predict the direction of Fed policy. I think the market will continue to recalibrate expectations for Fed rate cuts in November and December based on jobless claims data. Other indicators focusing on business activity will play a less important role.

2. JPMorgan: The Fed hints that it will be more cautious about the easing cycle

Kerry Craig, global market strategist at JPMorgan Asset Management, said in a note that the Fed has signaled a more cautious approach to the easing cycle. Craig said Powell communicated well by balancing the "urgency of returning to a neutral interest rate" with acknowledging the "relatively stable state of the economy." Craig added that the focus has also shifted more to an employment-first approach rather than inflation. The size of the rate cut may not be as important as the ultimate goal, which is to adjust the policy rate to closer to the Fed's neutral view by 2026 through an expected 150 basis point rate cut by the end of 2025. Craig said that if nominal growth and the easing cycle remain stable, stocks and bonds should benefit.

3. BlackRock: The Fed's easing cycle will last for two years

Rick Rieder, head of BlackRock's global allocation investment team, said the key significance of the Fed's decision to cut interest rates by 50 basis points is that the Fed will continue to cut interest rates over the next two years. Rieder said that as interest rates go lower, fixed income assets will benefit from it, but the relationship is not a straight line. He added that the rate cut does not provide answers to questions surrounding the economy, the upcoming US election or how geopolitics will develop. BlackRock remains bullish on assets in the middle of the yield curve, especially those that yield more than US Treasuries, because these assets provide generous income because real interest rates are still high.

4. Jefferies: The Fed took action early, but the market reaction was mild

Brad Bechtel, global head of foreign exchange at Jefferies, said that before the Fed made its interest rate decision, market expectations were almost 50-50. Therefore, the Fed obviously surprised half of the market. The Fed is trying to get ahead of the slowdown in the US economy and provide support. But so far, the market reaction has not been too crazy, and a lot of the reaction has been reflected in the price.

5. Goldman Sachs: The threshold for the Fed to increase interest rate cuts is very low

Lindsay Rosner, head of multi-sector investments at Goldman Sachs Asset Management, said: The Fed did what the market wanted. The market is happy with the Fed. The market is still ahead of the Fed and expects another 75 basis points of rate cuts this year (the Fed's dot plot shows 50 basis points). With unemployment and PCE estimates so close (to current levels), the Fed could easily cut more (than shown in the dot plot).

6. Bank of America: The Fed’s interest rate cut is aimed at protecting employment, and two more rate cuts are expected in the future

Tom Hainlin, senior investment strategist at Bank of America, said, "We don't have a particular view on whether it's a 25 basis point cut or a 50 basis point cut. So we wouldn't say we would necessarily be surprised. Looking ahead, at least between now and the end of the year, two more rate cuts should be expected. As inflation starts to get closer and closer to the target, it's not surprising that Powell is focused on the employment mission and he is concerned about potential downside risks in the labor market. There are signs that the labor market may be a little weaker than the data shows. So this seems to us to be an insurance measure relative to the labor market to prevent unemployment from rising and keep the economy running well."

7. Bank of America: The sell-off of the US dollar and the yen has been excessive, and it is expected to rebound to 150 in the fourth quarter

The yen could appreciate if Bank of Japan Governor Kazuo Ueda signals future rate hikes at Friday's meeting, but this would only be temporary, Bank of America said in a note. The Bank of Japan is likely to keep interest rates unchanged but remain on track to normalize policy, and Kazuo Ueda could hint at future rate hikes at a press conference, supporting the yen. We believe the sell-off in USD/JPY is overdone and expect the USD/JPY to rebound to 150 in the fourth quarter of 2024, Bank of America analysts said in a note.

8. Westpac Bank: Traders may adjust their positions after the Fed cuts interest rates, and the yen weakens

The yen weakened against other G10 and Asian currencies in early Asian trading, likely due to positioning adjustments triggered by the Federal Reserve FOMC's big rate cut decision and Fed Chairman Powell's speech overnight. Tim Riddell, a strategist at Westpac Bank, noted that the vulnerability of continued USD/JPY weakness has been "squeezed out" after the FOMC's rate decision. Riddell added that positioning adjustments could lead to a rebound in USD/JPY, trading in the 143.60-144.00 area, ahead of the Bank of Japan's policy decision on Friday.

9. Morgan Stanley: The Bank of England's policy language may be slightly dovish

Morgan Stanley expects the Bank of England to vote 6:3 to keep interest rates unchanged. But there may be a dovish adjustment in policy rhetoric, suggesting that action may be taken in November. "Given the full data since August and the scale of existing restrictions, we think the market should price a slightly higher rate cut in September." "But even so, we think the probability of a rate cut is no more than 30%." Morgan Stanley expects the size of the Bank of England's QT next year to be 100 billion pounds, compared with the previous forecast of 90 billion, but still believes that the risk is tilted towards lower. "November is the Bank of England's key meeting this year, and we expect it to lay the foundation for a faster pace of rate cuts as anti-inflationary momentum in service prices is strengthening. We expect rate cuts in November and December, bringing the bank rate to 3.25% by August next year."

10. Goldman Sachs: The Bank of England is expected to remain on hold and interest rates will drop to 3% faster

Goldman Sachs expects the Bank of England to vote 7-2 in favor of keeping interest rates unchanged, with no clear guidance on the way forward. The APF reduction is expected to be 100 billion pounds. It is expected that the successive rate cuts from November 2024 to August 2025 will bring the interest rate to 3.00%, with a probability of 40% for this base case. The previous forecast was that the interest rate would reach 3.00% by August 2026. Goldman Sachs pointed out three reasons for adjusting its expectations, including increased confidence that wage growth will cool significantly in the coming months, inflation progress may accelerate significantly in 2025, the simple Taylor rule points to a faster normalization, and most developed central banks will cut interest rates consecutively.

11. UBS: The Bank of England is expected to keep interest rates unchanged and shrink its balance sheet in a more gradual manner

UBS expects the BoE to vote 7-2 to keep Bank Rate unchanged, with Dhingra and Ramsden in favor of a rate cut. "It is very likely that the BoE will stop actively selling gilts in the next financial year and reduce its balance sheet in a more gradual manner." UBS continues to expect the BoE to cut rates again in November and pause in December. However, UBS has adjusted its 2025 expectations and now expects a 150 basis point cut to 3.25% by the end of 2025, from 3.00% previously. UBS now expects the practice of quarterly rate cuts to be maintained until August 2025 before the start of a series of rate cuts (previously it expected the series of rate cuts to start from May 2025 and reach 3.00% by December 2025). UBS points out that due to recent changes in energy prices, it now expects headline inflation to return to 2% only in October 2025, rather than in early 2025.

12. Barclays: The Bank of England is expected to keep interest rates unchanged with an 8:1 vote

Barclays analysts said they expect the Bank of England to vote 8 to 1 to keep interest rates unchanged and reduce its asset purchase facility (APF) assets by 100 billion pounds. "We believe there is a certain probability that Ramsden and/or Taylor will vote with Dhingra to cut interest rates, so our 1-8 voting ratio is expected to be at risk of leaning towards 3-6." The tone of the meeting statement is expected to remain cautious, while acknowledging that inflation has made further progress towards a sustainable return to the target. Existing guidance around the need to maintain restrictive policies is likely to remain unchanged. Interest rates are expected to be cut by 25 basis points in November and December and in February, May and August next year, reaching 3.75% by August 2025.

13. Societe Generale: The Bank of England is expected to keep interest rates unchanged with a 7:2 vote

Societe Generale Bank analyzed that in August, the Bank of England voted to cut interest rates by a narrow margin, and some members who voted for the rate cut called the decision "very balanced", which means that the MPC will act cautiously. The data since the August meeting has been moving in the right direction, but it is still too high and disturbing. Therefore, most members may not have enough confidence to cut interest rates again at the September meeting, and the voting ratio may be 7:2. It is not clear how the new member Alan Taylor, who replaced the hawkish member Haskell, will vote. The MPC will also vote on the upcoming QT pace. Recent news shows that the Bank of England is reluctant to change its current approach, so it is expected that he will further cut the national debt by 100 billion pounds. The next rate cut is expected to occur in November, because the further accumulation of weak data should strengthen the MPC's confidence that the risks to the continued return of inflation to the 2% target have been further reduced. After that, the Bank of England is expected to cut interest rates by 25 basis points to 2.5% every quarter.

14. ING: The Bank of England has not yet met the conditions for a rate cut and will be more cautious than the Federal Reserve

GBP/USD edged higher ahead of the Bank of England's policy decision tonight, where it is widely expected to keep interest rates unchanged. Inflation has not eased enough to warrant further rate cuts, ING analyst Francesco Pesole said in a note. He said the Bank of England is seen as being more cautious than the Fed, which has contributed to the pound's strength. "That should not change after today's meeting." Pesole said GBP/USD could rise above 1.33 by the end of the week, while EUR/GBP could fall below 0.84.

15. BNP Paribas: The Bank of England is at risk of raising the pace of QT to £120 billion

BNP Paribas analysts said they expect the Bank of England to keep interest rates and guidance unchanged, with a vote of 7 to 2. "Our core argument is that the bank maintains the QT pace of £100 billion, but we see a significant risk of increasing it to £120 billion." The Bank of England is expected to cut interest rates by 25 basis points per quarter in 2024 and 2025, reaching 4.75% and 3.75% by the end of 2024 and 2025 respectively (previously 4.50% and 3.50%, respectively). "Our forecast is that there will be further rate cuts in 2026, reaching a final rate of 3.00% around the middle of that year."

Article forwarded from: Jinshi Data