Market Snapshot: Choppy Trading as the Fed Decision Looms
Yesterday’s market action was a bit of a roller‑coaster – a tug‑of‑war between the USD’s woes and the steady Treasury demand. As traders fine‑tuned their expectations, the day was a preview of what’s coming next: the highly‑anticipated FOMC meeting.
Where We Stand
Overall, the market stayed sliced and diced, reflective of the calm before the storm that is the Fed meeting. My own take? A 25‑basis‑point cut is the likely path, but the market is keeping both sides in a delicate balance. A curve that once hinted at a 50‑bp move shows why we’ve, since 2009, almost never saw the Fed deviate from what the market had set up in the week of the decision.
Only once did the Fed surprise with a 50‑bp cut in early March 2020 – an emergency move that caught everyone off guard. That said, the current economic backdrop doesn’t scream “mega turn”. Inflation remains a tad higher than the 2% goal, unemployment is snug, and the economy is still chugging forward at >2% growth.
What matters most is the path the Fed charts for future rates, not the size of the haircut today. That said, the day’s decision will still give traders a healthy dose of intraday volatility.
Yesterday’s Highlights
- Stocks felt the pinch – tech lagged most. Apple dropped after weaker iPhone 16 demand, and classic AI stocks (Nvidia, Broadcom, Arm, Micron) saw selling pressure. The AI bubble’s two‑sided risk persisted throughout the summer, so investors doubled‑down on risk‑off as the Fed loomed.
- FX battled through bruiser USD weakness – the DXY slid to a 10‑day low, with the 100.50 level as critical support. The JPY dove below 140, then rebounded. Meanwhile, GBP, AUD and NZD jumped ~0.6% each toward weekly highs, giving equity bulls hope.
- Treasuries rallied, and the 2‑10 spread sharpened again – still hovering near the 10‑bp mark from last summer. Steeper yields are expected as central banks target a soft inflation band and keep expectations anchored.
- Gold & Commodities saw positive moves – gold hit record highs for three sessions, and crude slipped above $70/BTU. Both will need sustained demand for a lasting rally.
What to Watch Today
The big day of releases is set, and each could sway the mood that feeds into tomorrow’s Fed action.
US Retail Sales
Why it matters: A softer print could push a “giant” 50‑bp Fed cut; a hotter print might blunt dovish bets.
- Headline sales: expected to fall 0.2% month‑over‑month.
- Control group (the GDP basket): expected to rise 0.3% MoM for the third straight month.
- Industrial production: another key data point for the month.
German ZEW Sentiment
Germany’s September survey will add more “grim” tone to Europe’s larger economy. The expectation component is predicted to dip to 17.0 from 19.2 – a third straight MoM drop and the lowest reading since January.
Canadian CPI
With Governor Macklem hinting at larger BoC cuts, CPI becomes a hot topic.
- Headline inflation: 2.1% YoY for August (down 0.4 pp from July).
- The loonie sits near its 200‑day average at 1.3590.
- Market pricing: 50/50 chance of a 50‑bp cut next month, especially if inflation stays near the BoC’s target band and unemployment remains sticky.
Bottom Line
Today’s releases will add to a picture of a Fed day that looks more like a plot twist than a decaf cup. Whether we see a modest 25‑bp cut or a thrown‑away 50‑bp move, the key will be the guidance on the future path of rates – that will drive the market far more than the size of the decision itself. Stay tuned, and let’s see how the market reacts in real time.
