October 10th Financial News

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Palestinian-Israeli conflict

Summary:

The Fed's meeting minutes show officials were divided on how much interest rates should be lowered in September; Netanyahu discusses retaliation against Iran with Biden; the Reserve Bank of New Zealand (RBNZ) cuts rates by 50 basis points as expected...

[Quick Facts]

1. Fed's Sept meeting minutes: Officials divided on how much to cut.

2. Fed's Logan calls for "gradual" rate cuts.

3. Netanyahu discusses retaliation against Iran with Biden.

4. Fed's Daly sees one or two more rate cuts this year.

5. RBNZ cuts rates by 50 basis points as expected.

[News Details]

Fed's Sept meeting minutes: Officials divided on how much to cut

The minutes of the September Federal Open Market Committee meeting showed that officials were divided on how much interest rates should be lowered. Most participants supported a larger cut of 50 basis points, while some favored a reduction of 25 basis points. Most participants believed that the upward risks to inflation had diminished, while the downside risks to employment had increased.

Officials unanimously believed the larger rate cut should not be seen as a sign of concern for the economic outlook, nor as a signal that the Fed was preparing to cut rates rapidly. Some participants emphasized that reducing policy restrictions too late and too little could excessively weaken economic activity and employment.

Fed's Logan calls for "gradual" rate cuts

Dallas Fed President Lorie Logan said on Wednesday that she supported last month's significant rate cut. However, considering the "real" upward risks to inflation and the "substantial uncertainty" surrounding the economic outlook, she believes a more gradual path back to a normal policy stance will likely be appropriate moving forward. She noted that consumer spending or economic growth could exceed expectations, and financial conditions might experience "unnecessary" further easing. The Fed should not rush to lower the federal funds rate to normal or neutral levels but should proceed gradually while monitoring changes in financial conditions, consumption, wages, and prices.

Netanyahu discusses retaliation against Iran with Biden

U.S. President Joe Biden and Israeli Prime Minister Benjamin Netanyahu held a direct call on Wednesday, amid escalating tensions with Iran. Biden reiterated his strong commitment to Israel's security and condemned Iran's ballistic missile attack on Israel on October 1. He supported Israel's strikes against Iranian-backed targets such as Hezbollah and Hamas, while attempting to prevent further escalation of the conflict.

At the same time, Israeli Defense Minister Yoav Gallant said that Israel's actions against Iran would be "deadly, precise, and unexpected." Netanyahu vowed that the arch-enemy Iran would pay a price for its missile attacks, while Iran warned that any retaliation would bring massive destruction, raising concerns about a larger-scale war in oil-producing regions, with the U.S. potentially getting involved.

Fed's Daly sees one or two more rate cuts this year

Mary Daly, President of the San Francisco Fed, said on Wednesday that the labor market, with an unemployment rate of 4.1%, is at full employment. She fully supported the Fed's decision to cut rates by 50 basis points last month to maintain economic strength, adding that if economic developments unfold as she anticipates, there could likely be one or two more rate cuts this year.

RBNZ cuts rates by 50 basis points as expected

On Wednesday, the Reserve Bank of New Zealand lowered its interest rate by 50 basis points to 4.75%, aligning with market expectations and marking the second consecutive cut. Economist Abhijit Surya from Capital Economics stated that the Reserve Bank of New Zealand is likely to cut the official cash rate by another 50 basis points in the coming months, and the cut may be bigger than most predict, weighing on the New Zealand dollar.

[Today's Focus]

UTC+8 19:30 ECB September Monetary Policy Meeting Minutes

UTC+8 20:30 U.S. CPI YoY (Sept)

UTC+8 20:30 U.S. Weekly Initial Jobless Claims

UTC+8 22:30 Richmond Fed President Barkin Speaks

UTC+8 23:00 New York Fed President Williams Speaks

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Justin

Economic

Federal Reserve officials were divided over how much to lower interest rates in September, minutes from their last meeting showed, although most officials favoured the large half-point rate cut that central bankers ultimately made.

“Noting that inflation was still somewhat elevated while economic growth remained solid and unemployment remained low, some participants observed that they would have preferred” a quarter-point reduction, according to the minutes from the Sept. 17 and 18 gathering released Oct 9. And “a few others indicated that they could have supported such a decision.”

While one Fed governor, Michelle Bowman, did vote against the Fed’s big rate cut in favour of a smaller move, the fresh minutes showed that she was not alone in her misgivings. They suggested that the merits of a smaller move were debated.

“A few participants” thought that a smaller move “could signal a more predictable path of economic normalisation,” the minutes showed.

The revelation that there was a spirited discussion about how much to cut rates at the Fed’s last meeting underscores what an uncertain juncture the central bank is facing. Officials are trying to calibrate policy so that it is cooling the economy enough to wrangle inflation fully, without slowing it so much that it plunges America into a recession. But that is an inexact science.

The Fed’s ultimate decision – to start off its rate-cutting campaign with a big reduction – came in response to a few economic trends. Inflation has been cooling substantially, job gains had slowed, and the unemployment rate had recently moved up. Those factors suggested that it might be time to remove the Fed’s foot from the economic brakes by lowering rates decisively.

Now, though, it looks increasingly unlikely that Fed officials will make another large rate cut in 2024.

Hiring picked up in September, data released last week showed, and the unemployment rate ticked back down. When that is combined with recent evidence of solid consumer spending and healthy household balance sheets, risks of a big economic pullback now seem less pronounced.

Given the progress, Fed officials have been signalling that the economic projections that they released after their September meeting are probably a good guide for the rest of 2024. Those suggested that policymakers will cut rates at both their November and December meetings, but by only a quarter point each time.

The next big question facing the Fed is when it will stop shrinking its balance sheet of bond holdings. Policymakers bought bonds in massive sums during the early part of the 2020 pandemic, swelling their holdings. They have been shrinking their balance sheet steadily by allowing securities to expire without reinvesting them.

Officials appear inclined to stick with that plan, at least for now, based on the minutes.

“Several participants discussed the importance of communicating that the ongoing reduction in the Federal Reserve’s balance sheet could continue for some time even as the Committee reduced its target range for the federal funds rate,” the minutes showed.

Source: Straitstimes

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Owen Li

Economic

Korea's fiscal deficit grew markedly during the first eight months of 2024 amid weak corporate performances, the finance ministry said Thursday.

The managed fiscal balance, a key gauge of fiscal health calculated on stricter terms, posted a deficit of 84.2 trillion won ($62.44 billion) in the January-August period, larger than the shortfall of 65.8 trillion won a year earlier, according to the finance ministry.

This year's tally was the third-largest figure ever for any cited period. The shortfall hit an all-time high of 98.1 trillion won in 2020 due to the government's cash handouts for people hit by the COVID-19 pandemic.

Total revenue went up by 2.3 trillion won on-year to 396.7 trillion won during the cited period this year, led by an increase in nontax income.

But tax revenue fell 9.4 trillion won to 232.2 trillion won due to the sharp decrease in the government's collection of corporate taxes on their weak performances.

Total expenditure went up by 21.3 trillion won on-year to 447 trillion won as the government spent more on various welfare programs, according to the ministry.

The government's debt had reached 1,167.3 trillion won as of end-August, up 8 trillion won from a month earlier, the data showed.

Source: Koreatimes

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Cohen

Economic

US Federal Reserve (Fed) chair Jerome Powell is unlikely to win another big interest-rate cut from his policy committee so long as the labour market holds up.

Powell described the move as a recalibration aimed at making sure the labour market remained strong at his press conference after officials reduced the benchmark lending rate by a half percentage point to a range of 4.75% to 5%.

The move broke with the gradualism typical of Fed interest-rate changes. Some officials described their support of the move as arising from recent inflation data that convinced them the rate of price changes was headed towards their 2% target.

Nevertheless, minutes of the meeting showed there was a preference among some officials to cut rates at a more gradual pace, possibly because the economy remains remarkably resilient even in the face of what Fed officials call “restrictive” policy.

“Some participants observed that they would have preferred a 25-basis-point reduction of the target range at this meeting, and a few others indicated that they could have supported such a decision,” the minutes said.

“The tone of the hawks is, ‘If this is what you want, we will give you this one,’” said Derek Tang, an economist at LH Meyer/Monetary Policy Analytics in Washington. “A lot of them went into the meeting wanting” a 25-basis-point cut, he said.

The minutes said “a substantial majority” supported the 50-basis-point move. Tang called that a “rare term”, and added, “What they can’t say is almost all supported it.”

Powell nodded to the committee’s preference for gradualism in comments at the National Association for Business Economics meeting in Nashville on Sept 30.

“This is not a committee that feels like it’s in a hurry to cut rates quickly,” Powell said. “It’s a committee that wants to be guided, ultimately we will be guided by the incoming data.”

Labor market data for September showed a hefty bounceback from a slowdown in hiring over the previous three months. Payrolls rose by 254,000 and the unemployment rate declined to 4.1%.

The Atlanta Fed’s gross domestic product tracker now estimates the economy grew at an annualised rate of 3.2% in the third quarter. Some Fed officials are already noting that their preference is to move more slowly for now.

“Given where the economy is today, I view the costs of easing too much too soon as greater than the costs of easing too little too late,” St Louis Fed president Alberto Musalem said on Monday in remarks prepared for an event organized by the Money Marketeers of New York University Inc.

Musalem will be a voting member of the Federal Open Market Committee in 2025.

San Francisco Fed president Mary Daly, who votes on policy decisions this year, said in a moderated discussion on Wednesday that “two more cuts this year, or one more cut this year, really spans the range of what is likely in my mind, given my projection for the economy”.

Source: Theedgemarkets

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SAXO

Economic

Global Market Quick Take: Asia – October 10, 2024_1

Macro:

The Reserve Bank of New Zealand cut its official cash rate by 50 basis points to 4.75% in October 2024, aligning with market expectations. Annual inflation fell to 3.3% in Q2 2024, the lowest since Q2 2021 and within the target range of 1-3%. With excess capacity in the economy, the central bank eased monetary policy to maintain stable inflation and minimize disruptions to output, employment, interest rates, and the exchange rate.

FOMC Meeting Minutes: At their September meeting, Federal Reserve officials decided on a half-point interest rate cut to balance inflation confidence with labor market concerns, despite some uncertainty. Governor Bowman dissented, preferring a 25bps cut, marking the first rate dissent by a Fed governor since 2005. The Fed clarified that the 50bps cut should not be seen as a sign of a worsening economic outlook or a faster pace of policy easing. Most members were confident that inflation was moving toward the 2% target. The Fed reduced the fed funds rate by 50bps to 4.75%-5%, the first cut since March 2020, and projected a total of 100bps of easing by year-end.

Japan's producer prices rose by 2.8% yoy in September, up from 2.6% in August and above the expected 2.3%. This marked the 43rd consecutive month of producer inflation. Key contributors included transport equipment, beverages & foods, chemicals, electrical machinery, and non-ferrous metals. Prices for petroleum & coal and iron & steel rebounded. Monthly, producer prices were flat, beating expectations of a 0.3% decline after a 0.2% drop in August.

Germany's exports rose by 1.3% to EUR 131.9 billion in August, beating expectations of a 1.0% decline. This marked the second consecutive month of growth. EU exports increased by 0.8%, and exports to third countries grew by 1.9%, with notable increases to the US, China, and the UK, but a decline to Russia. Year-to-date, exports fell by 0.9% to EUR 1,061.4 billion compared to the same period in 2023.

Macro events: US CPI (September)

Earnings: Tilray, Delta, Domino’s, Thera, Neogen, Aehr

Equities: On Wednesday, both the S&P 500 and Dow Jones reached record highs, rising by 0.7% and 1% respectively, while the Nasdaq 100 rose by 0.8%. Investors were evaluating the latest Federal Reserve minutes and preparing for upcoming key inflation data. The minutes from the Fed's September meeting indicated that a "substantial majority" of officials favored a 50-basis-point rate cut, but future cuts remained uncertain. Both Logan and Daly showed to favour more gradual rate cuts in the next 2 meetings. Futures markets are now pricing an 83% probability that the next cut would be 25bps. Leading the market surge were tech giants such as Apple (up 1.7%), Amazon (up 1.4%), and Microsoft (up 0.7%). The rally helped alleviate concerns over Alphabet, whose shares dropped by 1.5% after the US Department of Justice suggested it might ask a judge to mandate Google to divest key businesses, including its Chrome browser and Android operating system, to address its search monopoly. Looking ahead, we await the key US CPI figure tonight for the month of September.

Fixed income: Treasuries declined as expectations for Federal Reserve policy easing, as reflected in the swaps market for this year and next, continued to fade. The session's lowest points were reached in the US afternoon following a lackluster 10-year note auction. A 30-year bond sale is scheduled for Thursday, coinciding with the release of September's CPI data. US yields had risen by 4 to 6 basis points for the day, with short and intermediate maturities seeing the largest increases, causing the 5s30s spread to flatten by about 1.5 basis points. The front end of the curve underperformed as the swaps market adjusted to reduced expectations for Fed easing, influenced by Michael de Pass, head of rates trading at Citadel Securities, who predicted only one 25 basis point rate cut by the end of the year.

Commodities: Gold prices fell for the sixth consecutive session, dropping below $2607, the lowest in about three weeks, due to a stronger dollar and expectations that the Federal Reserve will not lower interest rates as quickly as previously anticipated. WTI crude oil futures declined by 0.45% to $73.24, following a 4.6% drop the previous day, influenced by weak demand and rising supply. API data revealed a significant increase in US crude inventories, up nearly 11 million barrels, surpassing expectations. The US Energy Information Administration (EIA) also revised its 2025 demand forecast downwards, citing economic slowdowns in China and North America, adding further pressure on oil prices. Brent crude similarly fell by 0.78% to $76.58. Copper futures dropped to around $4.35 per pound, retreating from the three-month high of $4.6 reached on October 2nd, as markets reassessed the impact of Chinese stimulus on base metal demand in the near term.

FX: The dollar maintained its gains after the latest Federal Reserve meeting minutes revealed some resistance to a half-point interest rate cut. Traders are now focusing on the US inflation report due on Thursday. The yen weakened toward the key 150 per US dollar level, while the New Zealand dollar was the worst performer, dropping to its lowest level since August 19. This decline followed the central bank's decision to accelerate easing measures amid increasing concerns about an economic slowdown. The Bloomberg Dollar Spot Index rose by 0.4%, extending its winning streak to an eighth session, the longest since April 2022. The USDJPY 1-month implied volatility decreased by 0.115 vol to 12.67 as the FX pair retreated from the August 15 high of 149.39. The premium for hedging USDJPY downside over the next month compared to its upside narrowed as downside pressure eased.

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ING

Economic

Global Macro and Markets

Global Markets: US Treasury yields kept rising yesterday as the recent Fed minutes suggested that some of the attendees felt a 25bp cut would have been more appropriate. The Fed’s Daly overnight has suggested that another one or two 25bp cuts this year would seem likely. 2Y yields rose 6.3bp and are now 4.022%. The implied Fed funds rate by the end of the year is now 4.373%, and the expectations for the chances of two additional cuts by year-end have dropped further. 10Y yields are up 6.1bp to 4.073%. EURUSD has dropped as US yields have risen. EURUSD is now 1.0940. Other G-10 currencies are also softer. The AUD has declined to 0.6714, Cable is down to 1.3065, and the JPY has risen to 149.25. Other Asian FX is also looking weaker. USDCNY is back up to 7.0808 and the SGD has risen to 1.3077. Further weakness likely beckons today. US stocks were up yesterday. The S&P 500 and NASDAQ rose 0.71% and 0.6% respectively. China’s stocks tumbled on their return from vacation. The CSI 300 fell 7.05% while the Hang Seng fell a further 1.38%. That still leaves both bourses registering healthy year-to-date gains.

G-7 Macro: Besides the Fed minutes, it was fairly quiet for Macro yesterday, though today we have US CPI data for September. The headline index is expected to rise 0.1% MoM, which will take inflation down from 2.5% to 2.3% YoY. The core rate is expected to hold up a bit more and rise 0.2% MoM, leaving the core inflation rate unchanged at 3.2% YoY. Weekly jobless claims are the other fixture for Thursday.

China: After an NDRC press conference left many market participants underwhelmed, there has been an announcement of a Ministry of Finance briefing scheduled for 10 am GMT+8 on Saturday which should shape up to be an important event determining the direction of Chinese markets.

As the Ministry of Finance is in charge of bond issuance, investors anticipate potential measures relating to special bond issuance to be discussed at the briefing. The Ministry of Finance is also responsible for strategies involving taxation and public finance, where markets may be hoping for tax relief measures and additional spending plans. It’s uncertain if administrative procedures for these moves are complete, as major deviations from the budget or deficit target typically need to be approved by the National People's Congress (NPC). The range of market estimates is very broad but a majority appear to be expecting a package of RMB 2tn or above.

Regardless, it’s likely that if and when we get more details on the scale of spending, other policymakers will be better able to start to roll out supportive policies relevant to their functions; while it may take more time compared to monetary policy, we continue to expect a fiscal stimulus push in the coming weeks and months and have upgraded our 2025 growth forecast from 4.6% to 4.8% YoY in anticipation of stronger policy support.

Philippines: Trade data for August probably won’t make for very encouraging reading. Exports have been fairly soggy this year, and some slight pullback from the USD62.48bn July figure is likely in August. That will leave the year-on-year growth rate negative. The trade balance has held quite steady despite this, but mainly as imports have remained weak. Imports may also drop back slightly in August, leaving the trade deficit at about USD44bn.

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Glendon

Economic

As the landscape of online trading continues to evolve, FBS Global Ltd. is poised to make a significant impact with its upcoming Initial Public Offering (IPO). Established as a key player in the forex and trading industry, FBS Global is gaining traction among traders and investors alike. This article explores the company's background, its business model, financial performance, and what the IPO could mean for investors.

Company Overview: Who is FBS Global Ltd.?

Founded in 2009, FBS Global Ltd. has established itself as a prominent online brokerage firm specializing in forex and CFD (Contract for Difference) trading. The company offers a range of trading services, including access to various financial instruments such as currencies, commodities, stocks, and indices. FBS is well-known for its user-friendly trading platforms and a commitment to providing educational resources for traders.

With a mission to make trading accessible to everyone, FBS Global operates across multiple regions, catering to millions of clients worldwide. The firm has built a strong reputation for its customer support, diverse account types, and competitive trading conditions, which include tight spreads and leverage options.

FBS Global's Market Position and Growth Potential

The online trading market has seen exponential growth, driven by increasing interest from retail investors and advancements in technology. According to industry reports, the global online trading market is expected to reach $12 billion by 2026, growing at a CAGR of 8%. FBS Global, with its robust platform and customer-centric approach, is well-positioned to capitalize on this growth.

FBS Global has witnessed significant growth in its user base, with over 5 million registered users and a strong presence in emerging markets. The company has successfully expanded its operations in regions such as Southeast Asia, Latin America, and Eastern Europe, leveraging local partnerships to enhance its market reach.

Upcoming IPO Details

As FBS Global Ltd. prepares for its IPO, several key details are emerging:

IPO Date: The IPO is expected to take place in the first quarter of 2025, with the specific date to be confirmed.

Ticker Symbol: FBS Global plans to list its shares on the Nasdaq under the ticker symbol “FBG”.

Shares Offered: The company intends to offer approximately 15 million shares to the public.

Expected Price Range: The anticipated price range for the shares is between $10 and $15, which would value the company at around $150 million to $225 million.

Use of Proceeds: FBS Global intends to use the funds raised from the IPO to enhance its trading technology, expand marketing efforts, and support international growth initiatives.

Financial Performance and Projections

FBS Global Ltd. has shown impressive financial growth over the years. In 2023, the company reported revenues of approximately $80 million, up from $60 million in the previous year. This growth is attributed to an increase in trading volume and a rise in the number of active traders on its platform.

Despite the revenue growth, FBS Global has faced challenges typical of the trading industry, including regulatory scrutiny and market volatility. The company reported a net profit of $15 million in 2023, showcasing its ability to maintain profitability even amidst industry fluctuations.

Competitive Landscape

The online trading industry is competitive, with numerous players vying for market share. FBS Global faces competition from established brokers such as IG Group, OANDA, and eToro, as well as newer entrants that cater to retail traders. To differentiate itself, FBS Global emphasizes several key factors:

Customer Education: FBS provides comprehensive educational resources, including webinars, articles, and trading tools, empowering traders to make informed decisions.

Diverse Trading Accounts: The company offers various account types tailored to different trading styles, enabling clients to choose options that best fit their needs.

Innovative Technology: FBS continuously invests in its trading platforms, ensuring clients have access to cutting-edge technology and features that enhance their trading experience.

Risks and Considerations for Investors

While the FBS Global IPO presents exciting opportunities, potential investors should consider the following risks:

Regulatory Environment: The trading industry is subject to stringent regulations, which can impact business operations and profitability. Changes in regulations in key markets may affect FBS Global's ability to operate.

Market Volatility: As a trading firm, FBS is exposed to market risks and volatility, which can influence trading volumes and overall financial performance.

Dependence on Retail Traders: The company's success largely depends on retail traders, whose behavior can be unpredictable. A decline in retail trading activity could adversely impact FBS's revenue.

Future Outlook: What Lies Ahead for FBS Global?

Looking ahead, FBS Global is optimistic about its growth prospects. The company aims to enhance its market presence in emerging regions and expand its product offerings, including the introduction of new trading instruments and platforms.

With the IPO on the horizon, FBS Global plans to leverage the raised capital to bolster its technology infrastructure and marketing efforts. This strategic focus is expected to position the company for sustained growth in the competitive online trading landscape.

Conclusion: Is the FBS Global IPO a Good Investment?

As FBS Global Ltd. gears up for its IPO, the firm stands as a promising opportunity for investors interested in the online trading space. With a strong customer base, innovative technology, and a commitment to education, FBS Global is well-equipped to capitalize on the growing demand for online trading services.

However, potential investors should carefully evaluate the associated risks and market conditions before making investment decisions. The upcoming IPO presents an exciting opportunity, but thorough research and consideration of the trading landscape are essential for informed investment choices.

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