Major US stock indexes ended the session in different directions, as the rise in prices of Microsoft shares (MSFT) was offset by disappointment after the announcement of the results of the last Fed meeting.

Microsoft shares (MSFT) rose 1.63% after reports that the company's board of directors decided to increase quarterly dividends by 11% to $ 0.51 / share, and also approved a new $ 40 billion share buyback program.

Some support to the market was provided by the expectations of a new round of trade negotiations between Chinese and American officials, which will be held in Washington. The main objective of these two-day discussions is to set the stage for high-level negotiations in early October, which will determine whether Washington and Beijing can move forward to conclude a deal or resume the introduction of higher tariffs.

Investors also analyzed macroeconomic data for the United States. Thus, the report of the Department of Labor showed that the number of initial applications for unemployment benefits in the United States grew less than expected and remained at historically low levels, which suggests that the labor market remains stable. According to the report, the number of applications for unemployment benefits rose by 2,000 to 208,000 for the week ending September 14. Economists predicted that the number of applications for unemployment benefits would increase to 213,000.

At the same time, the National Association of Realtors (NAR) released a report that reflected an unexpected surge in home sales in the US in August. According to NAR, home sales in the secondary market rose in August by 1.3%, to an annualized rate of 5.49 million units, after increasing by 2.5%, to 5.42 million units in July. Continued growth came as a surprise to economists, who expected sales in the secondary housing market to drop to 5.37 million.

Most of the DOW components completed trading in the red (19 of 30). Outsider were the shares of The Walt Disney Co. (DIS; -2.64%). The biggest gainers were Microsoft Corp. (MSFT; + 1.63%).

Most S&P sectors recorded a decline. The consumer goods sector (-0.4%) and the services sector (-0.4%) decreased more than others. The conglomerate sector showed the highest growth (+ 0.5%).

At the time of closing:

Dow 27,094.79 -52.29 -0.19%

S&P 500 3,006.79 +0.06 + 0.00%

Nasdaq 100 8,182.88 +5.49 + 0.07%

Morten Lund, an analyst at Nordea Markets, thinks that the Bank of England (BoE) stroke a more dovish tone at the September meeting, implying that persistent Brexit uncertainty could dampen demand and inflation, leading to lower interest rates.

• “In line with both our view and all economists asked in Bloomberg’s survey, the Bank of England (BoE) kept both the Bank Rate and the bond purchase programme unchanged. The decision was unanimous (9-0). The overall message was, in our opinion, to the dovish side.
• Growth is now expected to be 0.2% q/q in Q3 compared to 0.3% projected in the August Inflation Report. Furthermore, the Bank of England stressed that if Brexit uncertainty would persist - particularly in an environment of weaker global growth - the more likely it is that demand growth will remain below potential and thereby increase excess supply. Hence, domestically generated inflationary pressures would be reduced. This stands in contrasts with what has otherwise been the message from the recent very high wage prints of 4.0% y/y which were the highest in 11 years and well above the 3.5% that is considered consistent with headline inflation of 2% in the medium-term. Finally, the BoE also hinted that some leading indicators were pointing towards a softening in the labour market.
• Overall, the bleaker outlook of both the labour market, inflation and growth is in line with our view. An interesting take on today’s message is also that if we were to see several extensions of the Brexit deadline, the Bank of England could be ready to cut rates to support demand.”

Danske Bank's analysts note that the Euro area banks decided to take EUR3.4bn in TLTRO3.1 operations today and was markedly lower than expected (also lower than Danske’s below-market consensus of EUR20-30bn), however, it will not impact the loose liquidity standards.

• “The low liquidity take-up needs to be seen in the context of changed terms last week where the ECB decided that the quarterly operations running until March 2021 should be each of 3-year maturity but also sweetened the rate by 10bp (now from MRO to deposit rate).
• Today's operation cannot be rolled into the 7 th and last operation in March 2021, as the early repayment optionality in today's operation only falls in September 2021. That may also have been a reason for the low take up. However, we expect the ECB to extend the TLTROs as we believe it is an underappreciated and uncontroversial tool.
• The maximum potential take up of 30% of eligible lending leaves more space in core countries than in peripheral countries. We estimate that on a banking system level, German banks would be able to take up to EUR368bn over the 7 operations. Similarly, Italian and Spanish banks could take up to EUR43bn and EUR44bn respectively.”

U.S. existing-home sales increase more than forecast in August

The National Association of Realtors (NAR) announced on Thursday that the U.S. existing home sales rose 1.3 percent m-o-m to a seasonally adjusted rate of 5.49 million in August from an unrevised 5.42 million in July.

Economists had forecast home resales increasing to a 5.37 million-unit pace last month.

In y-o-y terms, existing-home sales increased 2.6 percent in August.

According to the report, single-family home sales stood at a seasonally adjusted annual rate of 4.90 million in August, up from 4.84 million in July and up 2.9 percent from a year ago. The median existing single-family home price was $280,700 in August 2019, an increase of 4.7 percent from August 2018. Meanwhile, existing condominium and co-op sales were recorded at a seasonally adjusted annual rate of 590,000 units in August, 1.7 percent above the rate from the previous month and about equal to a year ago. The median existing condo price was $257,600 in August, which is up 5.2 percent from a year ago.

The NAR’s chief economist Lawrence Yun attributed the August increase in sales to falling mortgage rates. “As expected, buyers are finding it hard to resist the current rates,” he said. “The desire to take advantage of these promising conditions is leading more buyers to the market.”

Analysts at TD Securities note that the Bank of England (BoE) left its policy rate on hold, as unanimously expected, but the statement and minutes had a bit more meat to them than TD was expecting, and left a fairly downbeat tone.

• “The BoE revised its near-term GDP forecast lower (Q3 GDP from 0.3% q/q to 0.2%), and the outlook for global growth has weakened due to the intensified trade war, which is having a "material negative impact" on global investment. However, the BoE also said that the additional stimulus from the government's spending review earlier this month should add 0.4% to GDP over the next 3 years, so it looks like fiscal is coming to the rescue to some extent.
• On Brexit, the BoE suggested that in the case of a lengthy Brexit extension, it may need to cut rates, even if a no-deal Brexit is avoided.
• While the BoE maintained its conditional hiking bias - rates will rise at a gradual pace and a limited extent, assuming a smooth Brexit and some recovery in global growth - as those conditions are further away from materializing, the door seems to have been opened to a rate cut instead.
• Our Brexit base case sees an extension to 31 Jan, but if the can is going to be kicked down the road beyond that point (likely in the case of a general election, a Labour win, and another extension in order to negotiate a new withdrawal agreement and hold a new referendum), then we could see the BoE cut rates in H1 2020.”

U.S. stock-index futures rose slightly on Thursday as advances in Microsoft (MSFT; +1.4%), AT&T (T; +0.7%) and technology companies offset disappointing outcomes of  the Federal Reserve’s latest meeting.

Global Stocks:

(company / ticker / price / change ($/%) / volume)

The Manufacturing Business Outlook Survey, released by the Federal Reserve Bank of Philadelphia on Thursday, revealed the expansion in the region's manufacturing activity slowed in September.

According to the survey, the diffusion index for current general activity fell from 16.8 in August to 12.0 this month.

Economists had forecast the index to decrease to 11.0 last month.

A reading above 0 signals expansion, while a reading below 0 indicates contraction.

According to the report, the new orders index (-1.0 point to 24.8) fell, while the indexes for shipments (+7.4 points to 26.4) and employment (+12.2 points to 15.8) increased. Both the unfilled orders and delivery times indexes also remained positive this month, suggesting higher unfilled orders and slower delivery times. On the price front, the prices paid index surged 20 points to 33.0, its highest reading since December 2018, while the index for prices received rose 8 points to 20.8, its highest reading since March.

The data from the Labor Department revealed on Thursday the number of applications for unemployment benefits increased less than expected last week, pointing to healthy labor market conditions that should continue to support a cooling economy.

According to the report, the initial claims for unemployment benefits rose by 2,000 to a seasonally adjusted 208,000 for the week ended September 14.

Economists had expected 213,000 new claims last week.

Claims for the prior week were revised upwardly to 206,000 from the initial estimate of 204,000.

Meanwhile, the four-week moving average of claims fell by 750 to 212,250 last week.

Alvin Liew, the senior Economist at UOB Group, assesses the recently publish trade balance figures in Japan along with their outlook.

• “Japan’s Aug trade balance recorded another month of deficit amounting to JPY136.3bn but it was smaller than the JPY250.7bn deficit recorded in Jul and the Bloomberg median estimate of –JPY365.4bn. On an adjusted basis, the deficit was JPY130.8bn (from JPY104.0bn in Jul).
• Japan’s disappointing trade outcome in Aug affirms the weak global trade picture. Despite the better than expected GDP growth in the latest 2Q 2019 quarter for Japan, the external demand weakness looks set to continue into 3Q, weighing down on Japan’s growth outlook for 2H this year. We keep our cautious outlook for Japan’s trade prospects in 2019 due to the on-going US-China trade dispute and more recently, the Japan-South Korea souring trade relations. One much welcomed silver lining for Japan is that US President Donald Trump announced on Monday (16 Sep) that his administration has reached an initial trade accord with Japan over tariffs and he intends to enter into the agreement in coming weeks”.

TD Securities analysts note that New Zealand’s Q2 GDP came in as per their and the RBNZ’s August MPS expectations at 0.5% q-o-q vs. market's estimate of +0.4% q-o-q, placing annual growth at 2.1%, the slowest rate of growth since Q4 2013.

• “In terms of breakdown, the bounce in services we anticipated materialized, +0.7% in Q2 from +0.3% in Q1, with 8 of 11 industries showing growth offsetting weakness in manufacturing and construction in Q2.
• Given GDP was in line with the RBNZ’s forecasts, the fact that the Bank over-delivered even its own Aug MPS forecasts in cutting 50bps last month and the NZD is the worst performing G10 currency since the Aug MPS date (-2.8%), there is no compelling reason for the RBNZ to cut next week. That said we do expect the Bank to deliver one more cut in Nov this year.”

• Says France and Germany are making progress on joint economic strategy
• There is a risk of U.S. sanctions over Airbus and Boeing

The Bank of England (BoE) announced its Monetary Policy Committee (MPC) voted unanimously to maintain Bank Rate at 0.75 percent at its September meeting.

The MPC also voted unanimously to maintain the corporate bond purchases at £10 billion and UK government bond purchases at £435 billion.

In its statement, the BoE says:

• If Brexit uncertainty persists, inflationary pressures likely be reduce;
• Inflation is expected to remain slightly below the 2% target in the near term;
• Outlook for global growth has weakened due to intensified the trade war between the United States and China;
• Entrenched Brexit uncertainties and slower global growth have led to the re-emergence of a margin of excess supply;
• Labour market appears to remain tight, with the unemployment rate having been just under 4% since the beginning of this year;
• GDP is now expected to rise by 0.2% in Q3 (down from +0.3% q/q previously) after falling by 0.2% in 2019 Q2;
• UK underlying growth has slowed, but remains slightly positive;
• Monetary policy response to no-deal Brexit would not be automatic and could be in either direction.

• Says Fed should cut rates more as others cut
• Says that he is not thrilled with the Fed
• Says that Powell doesn't know how to play the game very well

• On this basis, we'll have technical discussions today and tomorrow on some aspects of customs manufactured goods and SPS rules

• Data points to muted inflation outlook for a long time
• ECB is providing substantial monetary stimulus

Danske Bank analysts note that as per expectations, the Fed last night cut its target range for the Fed funds rate by 25bp to 1.75-2.00% and the interest on excess reserves was lowered by 30bp to 1.80%.

“Crucially, the Fed still did not want to pre-commit to more easing. As a guide to future Fed decisions, Powell hinted to monitor (1) political/trade uncertainty, (2) global data and (3) US inflation. Thus the outcome of trade negotiations in early October will be key for the Fed's next decision. We continue to expect a cut at each of the next four Fed meetings, which are not fully priced by the market that looks for around three more into 2020. During the press conference, Powell faced several questions on the issue of the recent USD liquidity squeeze. The market was left disappointed, however, as the Fed seems surprised about the recent turmoil and expects it to be temporary. In our view, the factors behind this week's funding pressure are not extraordinary and will likely return in December. The market notably seems concerned that the Fed will be fine with a reactive approach to this.”

In its latest report, the Organization for Economic Co-operation and Development (OECD) cut its forecasts for the global economy,:

• 2019 global GDP growth at 2.9% (previously 3.2%)

• 2020 global GDP growth at 3.0% (previously 3.4%)

• 2019 US GDP growth at 2.4% (previously 2.8%)

• 2020 US GDP growth at 2.0% (previously 2.3%)

• 2019 China GDP growth at 6.1% (previously 6.2%)

• 2020 China GDP growth at 5.7% (previously 6.0%)

• 2019 Eurozone GDP growth at 1.1% (previously 1.2%)

• 2020 Eurozone GDP growth at 1.0% (previously 1.4%)

• 2019 Japan GDP growth at 1.0% (previously 0.7%)

• 2020 Japan GDP growth at 0.6% (unchanged)

• 2019 UK GDP growth at 1.0% (previously 1.2%)

• 2020 UK GDP growth at 0.9% (previously 1.0%)

China’s economic growth risks slipping below the lower-end of Beijing 2019 target of 6% in the third quarter or over the next year, analysts warn, but government economists are slightly more optimistic as they expect stimulus to help stave off a sharper slowdown.

Economists believe China’s economic growth likely cooled further this quarter from a near 30-year low of 6.2% in April-June, but they differ on whether the slowing trend could persist despite a raft of government policy measures.

“There is a risk for Q3 GDP to be below 6.0%,” said Zhaopeng Xing, an economist at ANZ.

“But we expect September will see a jump in fixed-asset investment because many gift projects for 70th anniversary will be confirmed to be in the statistics at the quarter end. So we maintain our forecast of Q3 GDP 6.1%,” he told Reuters.

UBS expects China’s economic growth to slow to 5.5% in 2020 from expected pace of 6.0% in 2019. Growth will slow further in the fourth quarter of 2019 and the first quarter of 2020 due to the impact from higher U.S. tariffs, UBS’s China economist Tao Wang said.

Beijing is targeting 6%-6.5% growth for 2019, and government analysts expect the stimulus measures will prop-up the economy.

In view of FX Strategists at UOB Group, NZD/USD could drop further on a breakdown of the 0.6300 handle.

24-hour view: “NZD traded sideways for most of yesterday but dropped sharply during NY hours and tested the strong support at 0.6300 (low of 0.6300). While the underlying tone is weak, 0.6300 remains as a strong support. Overall, a dip below 0.6300 is not ruled out but any weakness is viewed as a lower trading range of 0.6295/0.6345 (a sustained decline below 0.6295 is not expected).

Next 1-3 weeks: “While our view from Monday (16 Sep, spot at 0.6380) that “a short-term top is in place” was not wrong, the price action since then has weaker than anticipated. From here, if NZD were to register a NY close below 0.6300, it would increase the risk of a break of September’s 0.6270 low (next support is at 0.6230). The prospect for such a move is not that high for now but would increase quickly unless NZD can move and stay above 0.6360 within these 1 to 2 days”.

According to the report from Office for National Statistics, the monthly growth rate in the quantity bought in August 2019 fell by 0.2%; non-store retailing was the largest contributor to this fall, partially offsetting the strong growth reported last month for this sector.

The year-on-year growth rate shows that the quantity bought in August 2019 increased by 2.7%; this is a slowdown compared to the stronger growth experienced earlier in the year which peaked at 6.7% in March 2019.

Online sales as a proportion of all retailing fell to 19.7% in August 2019, from the 19.9% reported in July 2019.

In the three months to August 2019, the amount spent increased by 1.1% and the quantity bought increased by 0.6% when compared with the previous three months. When compared with a year earlier, both the amount spent and quantity bought showed strong growth of 3.4% and 2.7% respectively in August 2019; this growth is a slowdown to the strength experienced earlier in the year.

According to the report from European Central Bank, in July 2019 the current account of the euro area recorded a surplus of €21 billion, compared with a surplus of €18 billion in June 2019. Surpluses were recorded for goods (€26 billion), primary income (€6 billion) and services (€2 billion). These were partly offset by a deficit for secondary income (€14 billion).

In the 12 months to July 2019, the current account recorded a surplus of €317 billion (2.7% of euro area GDP), compared with a surplus of €383 billion (3.3% of euro area GDP) in the 12 months to July 2018. This decline was mainly driven by a smaller surplus for services (down from €117 billion to €89 billion) and a bigger deficit for secondary income (up from €139 billion to €159 billion). Smaller surpluses for goods (down from €311 billion to €297 billion) and primary income (down from €93 billion to €90 billion) also contributed to the decline.

In the financial account, euro area residents made net acquisitions of foreign portfolio investment securities totalling €87 billion in the 12-month period to July 2019 (down from €457 in the 12 months to July 2018). Non-residents made net acquisitions of euro area portfolio investment securities amounting to €101 billion (down from €246 billion).

Analysts at TD Securities are looking for the UK’s retail sales to post a modest 0.2% m/m gain in August, slightly above consensus expectations for a -0.1% decline.

“August generally saw good weather, particularly for the Bank holiday weekend at the end of the month that likely prompted a wave of staycations, which should be supportive of spending. For the BoE, we think that today's meeting should be an entirely uneventful placeholder. It's impossible for the BoE to act one way or the other until Brexit is resolved.”

• Willing to intervene and will remain active in FX market as necessary

• Expansionary monetary policy continues to be necessary

• Trade tensions could further hurt global economic mood

• Franc remains highly valued

• 2019 GDP forecast at 0.5% to 1.0%; previously 1.5%

• 2019 inflation forecast at 0.4%; previously 0.6%

• 2020 inflation forecast at 0.2%; previously 0.7%

• 2021 inflation forecast at 0.6%; previously 1.1%

Uncertainty surrounding the U.S.-China trade war is hitting global growth, and that could be driving the slowdown more than the tariffs themselves, former U.S. Deputy Treasury Secretary Sarah Bloom Raskin told CNBC.

“One of the things actually weighing on the U.S. economy as well as the world economy really is the uncertainty regarding these trade tensions, it’s very difficult to know what the end game is,” said Ruskin, who was also a U.S. Federal Reserve governor between 2010 to 2014 under the Obama administration.

Citing a study conducted by Fed economists on how that uncertainty translates into slower growth, she said one thing it found was that “it’s not necessarily the trade war, or the tariff itself that causes the slowdown — but the uncertainty around it.”

“Knowing in essence what the end game is, what the goal is, when will it be over, I think that uncertainty is something that we should try to do what we can to eliminate, because it is really making growth actually slower than it has to be,” said Raskin.

• Each respective central bank guides monetary policy based on their own economies

• BOJ will scrutinise impact of other central bank moves' in guiding policy

• Economic slowdown abroad is continuing, closer scrutiny is needed in October

• No signs of recovery in the global economy just yet

• Doesn't think that momentum to hit price goal is lost currently

• Doesn't think that economic outlook is deteriorating rapidly

• External demand is weak but domestic demand remains firm

• BOJ main scenario of a pickup in global growth hasn't changed

• BOJ still has options to ease monetary policy further

• It would be more desirable if the yield curve would steepen more

• Will make necessary adjustments to ensure yield curve is steep enough

Axel Rudolph, analyst at Commerzbank, suggests that EUR/USD pair is still targeting the April and May lows as well as the three month resistance line at 1.1089/1.1110, having bounced off the September 17 low at 1.0990.

“Only a daily chart close above the August 26 high at 1.1164 would confirm a bottoming formation and put the 200 day ma at 1.1254 back on the cards. Support below the recent lows at 1.0927/26 comes in at the June 2016 low and the March 2017 high at 1.0912/07. Failure at 1.0927/26 would negate our bullish outlook and put the January 2017 low at 1.0829 and the 78.6% Fibonacci retracement of the 2017-2018 advance at 1.0814 on the map.”

Any recession that happens in the US would likely be “shallow” given the current state of the country’s economy, according to Tom Finke, chairman and CEO of investment management firm Barings.

“From the U.S. point of view and the U.S. economy, if we’re talking about a recession in the U.S., the consumer and growth industries like (technology) have offset declines in ... other industries,” Finke told CNBC.

“We still have tight labor markets, you still have growth industries,” Finke said. “It’s not the typical, if you will, cyclical slowdown where you have a big long decline going into it. We’re actually growing still.”

As the U.S.-China trade fight rages, major stock markets across the globe have fluctuated wildly. Finke said Barings keeps its eye on the fundamentals in such an environment.

“What we’re looking at,” he said, “is industries and companies and their balance sheets and their income statements to say: ‘OK, do they have sustainable growth going on ... are they able to generate cash flow, are they in an industry that’s being disrupted like retail, or are they in an industry that’s growing like technology?’”

“You gotta look at those fundamentals and not just look at the movement in stock market day-to-day, and picking value in credit markets and in asset markets like real estate,” he said.

CIBC discusses its reaction to  FOMC policy decision. "If a central bank can seems a bit hawkish on the very day they announce a rate cut, the Fed may have managed to do just that, in part due to the divisions among FOMC members about what lies ahead. While approving a quarter point cut on the target rate (and an extra 5 bps off the rate paid on overnight reserves in an effort to cool the crunch we've seen in funding rates in the last couple of days), the Fed avoided promising a lot more to come. The "dot" forecast doesn't have any further cuts this year or next, in terms of the median dot, but we note that there were 7 dots showing another quarter point cut this year, and we suspect that more of the hawks are among regional presidents who don't always vote. We'll therefore stick to our call for one more cut this year, and then a pause through 2020. There were two dissents in favour of no cut, and one for a 50 bp move. There were no meaningful changes in growth or inflation forecasts, but clearly, there's still a lot of uncertainty surround that path, and in the policy assumptions on trade etc. that go with it," CIBC adds.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1177 (2112)

$1.1147 (1981)

$1.1115 (1431)

Price at time of writing this review: $1.1036

Support levels (open interest**, contracts):

$1.0988 (5448)

$1.0944 (3184)

$1.0897 (2195)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date October, 4 is 95169 contracts (according to data from September, 18) with the maximum number of contracts with strike price $1,1050 (13259);

GBP/USD

Resistance levels (open interest**, contracts)

$1.2590 (1793)

$1.2568 (846)

$1.2538 (573)

Price at time of writing this review: $1.2471

Support levels (open interest**, contracts):

$1.2388 (602)

$1.2355 (603)

$1.2317 (780)

Comments:

- Overall open interest on the CALL options with the expiration date October, 4 is 15553 contracts, with the maximum number of contracts with strike price $1,2500 (1793);

- Overall open interest on the PUT options with the expiration date October, 4 is 15824 contracts, with the maximum number of contracts with strike price $1,1900 (1462);

- The ratio of PUT/CALL was 1.02 versus 1.00 from the previous trading day according to data from September, 18

* - The Chicago Mercantile Exchange bulletin (CME) is used for the calculation.

** - Open interest takes into account the total number of option contracts that are open at the moment.