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The main US stock indices restored almost all previously lost positions, and completed trading mainly in positive territory, the reason for which was more obvious comments and signals from the head of the Fed, Powell, that politicians do not want to cut rates. However, in Powell's comments there was enough evidence that politicians were ready to support economic expansion and do what would be necessary.

As for the outcome of the Fed meeting, the Central Bank expectedly lowered interest rates, explaining its decision by the desire to protect the US economy from the global economic downturn. The Fed announced the possibility of a further reduction in rates, but there was no unanimity among the leaders about the correctness of the decision made on Wednesday and the prospects for easing the policy (7 out of 10 leaders voted to lower rates).

Meanwhile, the accompanying statement did not differ much from the July one, when the leaders left the opportunity to lower rates in the future. The Fed management said it would "ponder the further trajectory" of rates, "continuing to track incoming information and analyzing its significance for the prospects of the economy."

Investor data also attracted some US data. A report from the Department of Commerce showed that new housing in the US recorded a significant rebound in August. According to the report, housing construction in August rose 12.3% to an annual level of 1.364 million in August after falling 1.5% to a revised 1.215 million in July. Economists had expected housing construction volumes to grow 5% to 1.250 million from 1.191 million, which was originally reported the previous month. At the same time, building permits also increased - by 7.7% to an annualized level of 1.419 million after an increase of 6.9% to a revised level of 1.317 million in July. The number of building permits was expected to decline by 2.7% to 1.300 million from 1.336 million, which was originally reported in the previous month.

Most DOW components completed trading in positive territory (16 out of 30). The biggest gainers were JPMorgan Chase & Co. (JPM; + 0.89%). Outsiders were shares of Dow Inc. (DOW; -1.25%).

Most S&P sectors recorded a decline. The conglomerate sector showed the largest decrease (-0.8%). The utilities sector grew more than the rest (+ 0.3%).

At the time of closing:

Dow 27,147.08 +36.28 + 0.13%

S&P 500 3,006.73 +1.03 + 0.03%

Nasdaq 100 8,177.39 -8.62 -0.11%

Analysts at TD Securities note that Canada’s headline CPI was slightly weaker than expected in August with prices down 0.1% on the month which pushed inflation to 1.9% from 2.0% in July (market: -0.2%, 1.9%).

• “Gasoline was a significant source of weakness with prices down 5.0% m/m which shaved 0.15% off the headline print, while heating (-1.6%) and recreational fuels (-4.4%) added to the headwind.
• Looking past the headline print, the Bank of Canada's preferred core measures edged slightly lower to 2.0% on average (from 2.03%) on a 0.1pp decline in CPI-common, while CPI-trim and CPI-median held at 2.1% y/y. Alternative core measures were more mixed, with ex. food & energy unchanged at 2.2% y/y while the old CPIX measure edged lower to 1.9% y/y. However, with headline holding near target and 2 of the Bank's 3 preferred measures still sitting above 2%, this will not do much to push the BoC off the sidelines before the end of the year.”

The U.S. Energy Information Administration (EIA) revealed on Wednesday that crude inventories increased by 1.058 million barrels in the week ended September 13. Economists had forecast a drop of 2.250 million barrels.

At the same time, gasoline stocks rose by 0.781 million barrels, while analysts had expected a decline of 0.750 million barrels. Distillate stocks grew by 0.437 million barrels, while analysts had forecast an advance of 0.500 million barrels.

Meanwhile, oil production in the U.S. was unchanged at 12.400 million barrels a day.

U.S. crude oil imports averaged 7.1 million barrels per day last week, up by 326,000 barrels per day from the previous week.

Josh Nye, the senior economist at Royal Bank of Canada (RBC), notes that Canada’s headline CPI ticked lower to 1.9% year-over-year while core inflation remains steady at 2%.

• “Headline inflation crept lower over the last three months as consumers got a break on gasoline prices over the summer. Meanwhile, underlying inflation continues to hum along at 2%, making the Bank of Canada the envy of its global peers.
• With the Fed set to lower borrowing costs again today (and potentially leave the door open to another cut) the BoC might just end the year with the highest policy rate in the G7. Inflation would be a key reason for that. For consumers, the combination of steady inflation and accelerating wage growth is good news. Of course, other pressures like housing affordability aren’t captured well in the CPI, so not all households will be feeling an increase in purchasing power.”

Statistics Canada reported on Wednesday the country’s consumer price index (CPI) edged down 0.1 percent m-o-m in August, following a 0.5 percent m-o-m advance in the previous month.

On the y-o-y basis, Canada’s inflation rate increased 1.9 percent last month after a 2.0 percent increase in July.

Economists had predicted inflation would decrease 0.1 percent m-o-m but gain 2.0 percent y-o-y in August.

According to the report, the slowdown in headline inflation was primarily due to lower gasoline prices (-10.2 percent y-o-y). Excluding gasoline, the CPI rose 2.4 percent y-o-y, matching the gain in July.

Meanwhile, the closely watched the Bank of Canada's core index rose 1.9 percent y-o-y in August, decelerating from 2.0 percent in the previous month. Economists had forecast an advance of 2.2 percent y-o-y.

U.S. stock-index futures fell slightly on Wednesday as investors awaited the announcement of Federal Reserve’s decision on interest rates.

Global Stocks:

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

The Commerce Department reported on Wednesday the building permits issued for privately owned housing units climbed by 7.7 percent m-o-m in August to a seasonally adjusted annual pace of 1.419 million (the highest level since May 2007), while housing starts surged by 12.3 percent m-o-m to an annual rate 1.364 million (the highest level since June 2007).

Economists had forecast housing starts advancing to a pace of 1.250 million units last month and building permits falling to a pace of 1.300 million units.

Data for July was revised to show homebuilding dropping to a pace of 1.215 million units, instead of decreasing at a rate of 1.191 million units as previously reported.

According to the report, permits for single-family homes, the largest segment of the market, rose 4.5 percent m-o-m at 866,000 in August, while approvals for the multi-family homes segment surged 13.3 percent m-o-m to a 553,000 unit-rate.

In the meantime, groundbreaking on single-family homes rose 4.4 percent m-o-m to a rate of 919,000 units in August (the highest level since January), while housing starts for the multi-family jumped 32.8 percent m-o-m to a 445,000-unit pace.

FedEx (FDX) target lowered to $190 at Cowen

AT&T (T) downgraded to Hold from Buy at DZ Bank

FedEx (FDX) downgraded to Hold from Buy at Stifel; target lowered to $171

FedEx (FDX) downgraded to Market Perform from Outperform at BMO Capital Markets; target lowered to $165

FedEx (FDX) downgraded to Sector Weight from Overweight at KeyBanc Capital Markets

FedEx (FDX) downgraded to Hold from Buy at Deutsche Bank; target lowered to $142

FedEx (FDX) reported Q1 FY 2020 earnings of $3.05 per share (versus $3.46 in Q1 FY 2019), missing analysts’ consensus estimate of $3.16.

The company’s quarterly revenues amounted to $17.048 bln (0.0% y/y), generally in line with analysts’ consensus estimate of $17.049 bln.

The company also issued downside guidance for FY 2020, projecting EPS of $11.00-13.00 versus analysts’ consensus estimate of $14.62.

FDX fell to $154.65 (-10.76%) in pre-market trading.

Analysts at TD Securities, suggest that, while a move by the BoJ at this meeting is unlikely, the officials have been edging towards action as reflected in various comments by BoJ policymakers.

• “Governor Kuroda has highlighted four options for potential easing. A scheduled consumption tax hike next month together with a strong JPY have increased the pressure for the BoJ to act. At the same time policy is already ultra- easy and the BoJ remains cognizant of adverse secondary impact of policy on Banks.”

Bill Diviney, the senior economist at ABN AMRO, expects a quicker pace of cuts than markets and consensus and suggests that they and the consensus is looking for a 25bp cut when the September FOMC meeting concludes today.

• “Market pricing of rate cuts has declined somewhat over the past week, consistent with the broader move in bond markets surrounding last Thursday’s ECB meeting, however, a 25bp cut is still around 90% priced in. Given this, the focus will naturally be on the quarterly projections and on Chair Powell’s press conference. Ultimately, we expect the Fed to deliver another two rate cuts by the end of the year after today’s cut, which is more aggressive than both consensus and markets – both of which expecting just one further cut this year. However, the difference is more about timing and pace, as both consensus and markets expect another cut next year, while we expect the Fed to pause.
• The question for this week is, to what extent the Fed will immediately signal more easing? Given the high degree of uncertainty over the trade war and the rather mixed tone to macro data, the FOMC will likely be reluctant to pre-commit and to signal too much at this stage; we expect the median ‘dots’ to foresee no further cuts this year, with one or two cuts next year.”

Analysts at TD Securities are expecting Canada’s headline inflation to slip below target with a pullback from 2.0% to 1.7% y/y in August, with prices down 0.3% on the month.

• “Lower gasoline prices will provide the main catalyst for the deceleration with a 4% decline in the price at the pump, which would contribute to a larger (0.28pp) drag from energy on a year-ago basis. This headwind is set to intensify into 0.4pp by September before base effects from the 2018Q4 collapse in oil prices bring about a rapid recovery on a year-ago basis.
• With the pullback on headline CPI driven in large part by outsized swings in two components, we do not expect the same impact on core CPI measures that a broad decline in pricing pressures would indicate. The BoC's preferred core metrics are expected to hold at 2.0% y/y on average for August, while the ex. food & energy measure should edge lower to 2.0% from 2.1% y/y.”

• Stimulus package will boost inflation, growth
• Measures in the stimulus package are complementary
• Dip in services PMI shows rising risk of a global downturn
• It points to the global slowdown in Q2 likely to persists in the coming months
• Available data indicates euro area economic weakness persists in Q3
• There are risks of an imminent recession in some euro area countries
• Calls for actions from countries with scope for fiscal stimulus

The Mortgage Bankers Association (MBA) reported on Wednesday the mortgage application volume in the U.S. fell 0.1 percent in the week ended September 13, following a 2.0 percent advance in the previous week.

According to the report, applications to purchase a home rose 6 percent, while refinance applications fell 4 percent.

Meanwhile, the average fixed 30-year mortgage rate increased to 4.01 percent from 3.82 percent.

“New home purchase activity was robust in August, as both mortgage applications and estimated home sales increased from a year ago,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Recent increases in new residential housing permits and housing starts, lower mortgage rates, and a still-strong job market all bode well for the new home sales outlook.”

Analysts at Rabobank suggest that today, the New York Fed will conduct another operation to inject more overnight cash into the market and with the effective fed funds rate near the top of the band, these operations may be necessary to transmit the FOMC’s monetary policy decisions.

• "The Committee looks set to lower the target band by 25bp again today to maintain the US expansion. However, where the policymakers still see these rate adjustments as ‘insurance cuts’ rather than the start of an easing cycle, our US strategist begs to differ.
• In his view, there is a strong possibility of a third cut this year, probably in October already, as uncertainty continues to cloud the outlook. Moreover, Philip believes that this will be followed by an actual cutting cycle next year as the economy heads into a recession.
• The decision today will be accompanied by new economic projections, including the dot plot. While the latter should serve as an indicator of where the Committee believes rates will move from here, Philip notes that the June projections did not signal any rate cuts for this year. With a second cut forthcoming, this shows that we should definitely not take the dot plot for granted.”

James Smith, the developed markets economist at ING, notes that at 1.5%, UK core inflation fell reasonably sharply in August and came in quite a bit below market expectations for 1.8% year-on-year. This now sits at the lowest level since late-2016, although there are few reasons why this shouldn’t be overstated.

• "Firstly, some of the fall was down to unusual volatility in the price of games & toys. Having risen by the fastest monthly rate since the 1980s back in July, the price of these recreational goods fell back by 5% during August. Secondly, clothing prices didn’t increase as rapidly as they did at the same time last year. Elsewhere, price changes appeared more ‘normal’ and we expect to see core inflation nudge a bit closer to target over the next couple of months, particularly in light of fairly favourable base effects.
• Either way, the outlook for consumer prices still appears fairly benign - even when considering the latest increase in oil prices. However, for the Bank of England, wage growth continues to be a bigger consideration. Skill shortages in certain parts of the jobs market are prompting more rapid rises in regular pay, and wage growth continues to sit around post-crisis highs. Given services make up a sizable share of the UK inflation mix, and these items tend to be fairly labour-intensive, these higher wage costs could feasibly translate into a bit of upward pressure for consumer prices in the medium- term.
• This is the main reason why the Bank of England will likely retain its notional tightening bias at tomorrow’s meeting – and also suggests it’s too early to pencil in rate cuts in the UK. Equally though, the ongoing uncertainty surrounding Brexit, and mounting concerns over global growth, suggests the prospect of any further policy tightening is also still quite a long way off."

Deutsche Bank analysts point out that not long ago today’s FOMC was perhaps gearing up to be closer to a 50/50 call between a 25bp or 50bp cut, however, the latter looks a lot less likely now with markets only pricing in about a 15% chance of that happening. 

“Our US economists also expect a 25bp cut which mirrors the consensus. The bigger focus will be on what the Fed signals about the expected policy trajectory in the coming months. Our US economists note that a continued dovish bias should be evident in the statement language, Summary of Economic Projections and Chair Powell’s press conference. The latter in particular should echo the narrative that, while the baseline outlook for the economy remains favorable, officials are attuned to significant risks emanating from softer global growth and elevated trade uncertainty. Our colleagues do not expect the September rate cut to be the last of this cycle though. With accumulating evidence that the economy is slowing amid greater sensitivity to the trade turmoil, they recently adjusted their call to reflect a further cumulative 75bps of rate cuts after this meeting, specifically at the October, December and January get togethers.”

Axel Rudolph, analyst at Commerzbank, suggests that GBP/USD’s advance has taken the cross to the May and June lows at 1.2506/59 and between these levels and the mid-July high at 1.2580 the cross short-term consolidated for a day or two.

“Further up strong resistance between the seven month resistance line, 200 day ma and the June high at 1.2689/1.2784 remains in sight. Now that a weekly Friday chart close above the 1.2310 August high has been seen, we changed our weekly forecast to a bullish one. Minor support below the 55 day moving average and the September 12 low at 1.2300/1.2283 is seen between the early and mid-August lows at 1.2080/15 and major support at the 1.1958 current September low. A slip through the 1.1958 recent low would put the 1.1491 October 2016 low (according to CQG) on the cards.”

According to first estimates from Eurostat, in July 2019 compared with June 2019, seasonally adjusted production in the construction sector decreased by 0.7% in the euro area (EA19) and by 0.1% in the EU28. In June 2019, production in construction increased by 0.6% in the euro area and by 0.1% in the EU28. In July 2019 compared with July 2018, production in construction increased by 1.1% in the euro area and by 1.7% in the EU28.

In the euro area in July 2019, compared with June 2019, civil engineering fell by 0.9% and building construction by 0.6%. In the EU28, civil engineering fell by 0.6% and building construction by 0.1%.

In the euro area in July 2019, compared with July 2018, building construction increased by 1.2% and civil engineering by 0.4%. In the EU28, civil engineering rose by 2.5% and building construction by 1.3%.

According to the report from Eurostat, in August 2019, consumer price index rose 0.1% after falling 0.5% in July. Economists had expected a 0.2% increase.

The euro area annual inflation rate was 1.0% in August 2019, stable compared to July. A year earlier, the rate was 2.1%. European Union annual inflation was 1.4% in August 2019, stable compared to July. A year earlier, the rate was 2.2%. 

The lowest annual rates were registered in Portugal (-0.1%), Greece (0.1%) and Spain (0.4%). The highest annual rates were recorded in Romania (4.1%), Hungary (3.2%), the Netherlands and Latvia (both 3.1%). Compared with July, annual inflation fell in nine Member States, remained stable in six and rose in twelve. 

In August, the highest contribution to the annual euro area inflation rate came from services (+0.60 percentage points, pp), followed by food, alcohol & tobacco (+0.40 pp), non-energy industrial goods (+0.08 pp) and energy (-0.06 pp).

According to the report from Office for National Statistics (ONS), the Consumer Prices Index (CPI) 12-month rate was 1.7% in August 2019, down from 2.1% in July 2019. Economists had expected a 1.9% increase. On a monthly basis, consumer prices rose 0.4% in August after stabilizing in July. Economists had expected a 0.5% increase

The Consumer Prices Index including owner occupiers’ housing costs (CPIH) 12-month inflation rate was 1.7% in August 2019, down from 2.0% in July 2019. The largest downward contributions to the change in the CPIH 12-month rate between July and August 2019 came from a range of recreational and cultural goods and services (principally games, toys and hobbies, and cultural services), clothing and sea fares. Rises in air fares resulted in the largest, offsetting, upward contribution to change.

The headline rate of output inflation for goods leaving the factory gate was 1.6% on the year to August 2019, down from 1.9% in July 2019. The annual rate has remained positive since July 2016. The monthly rate fell to a negative 0.1% in August 2019, down 0.4 percentage points from July 2019.

The growth rate of prices for materials and fuels used in the manufacturing process was negative 0.8% on the year to August 2019, down from 0.9% in July 2019.

Transport equipment provided the largest upward contribution to the annual rate of output inflation. Crude oil provided the largest downward contribution to the annual rate of input inflation.

Large banking institutions face the risk of failure if interest rates in Europe continue to stay negative, an economist told after the ECB cut rates last week.

“I think there are big questions to banking sector profitability,” global chief economist of the Economist Intelligence Unit, Simon Baptist, said. The ECB cut its main deposit rate by 10 basis points to -0.5% — an all-time low.

European banks have struggled for years in a persistently low interest rate environment. Rates in the Euro zone first hit zero in 2012 and turned negative in 2014. Low interest rates hurt lenders’ profits as they narrow the margin that banks can earn.

“If interest rates stay below zero, they’re certainly not all going to be able to be profitable, running as they are today, in 10 years’ time,” Baptist said CNBC.

“There’s either going to have to be consolidation ... maybe some bank failures, or some really radical changes in business models,” he said.

A deal to ensure a smooth British exit from the European Union is still possible, but the risk of a no-deal is also “very real”, European Commission President Jean-Claude Juncker said on Wednesday.

“There is very little time left. The prime minister has told us he wants a deal, but he will leave with or without a deal,” Juncker told the plenary in Strasbourg. “The risk of a no deal is very real,” said Juncker, who met British prime minister Boris Johnson on Monday in Luxembourg.

Finland’s minister for European affairs also said that it is quite likely that Britain will leave the European Union without a deal at the end of October.

“A no-deal Brexit is a quite likely outcome,” Tytti Tuppurainen told the EU Parliament in Strasbourg during a debate on Brexit. Finland holds the rotating presidency of the European Union.

UK consumer spending continued to fall in August, Visa's UK consumer spending index, compiled by IHS Markit showed Wednesday.

Spending dropped 1.3% year-on-year in August, following a 1.2% fall in July. Expenditure has fallen in each of the past 11 months. On a monthly basis, household expenditure rose only 0.8%.

The latest reading of the Visa Consumer Spending Index suggests that retailers continue to face a challenging environment, as spending slipped in August across most categories, Adolfo Laurenti, European Principal Economist, Visa, said.

Data showed that eCommerce spending saw a renewed contraction of 0.5% in August. High street expenditure was down for the fourth consecutive month, albeit to the least extent in this sequence of 1.2%.

Almost 40% of British businesses with suppliers in the European Union have signed "Brexit clauses" to allow prices or other terms to be renegotiated if trade tariffs return after a no-deal departure from the bloc, a survey showed on Wednesday.

The Chartered Institute of Procurement & Supply (CIPS) said the survey of 817 supply chain managers in Britain and the EU showed that British firms would incur the cost of any tariffs when buying parts from the bloc, potentially pushing up prices.

"These potential additional costs are being written into contracts ahead of time," CIPS economist John Glen said. "Where this would be particularly damaging is SMEs (small and medium-sized enterprises) who are not flush with cash."

The survey, which monitors businesses in sectors including aerospace, construction, food and medical, also found only 22% of respondents among British firms with EU suppliers believed they had completed the paperwork to trade outside the bloc.

According to the report from European Automobile Manufacturers' Association (ACEA), in July 2019, demand for new passenger cars increased by 1.4%, with almost 1.3 million units registered across the European Union. Looking at the five big Western European markets, Germany was the only major car market to post positive results (+4.7%). The region-wide increase was largely supported by the Central European countries, where registrations went up 13.4% in July.

During the month of August, the EU passenger car market contracted by 8.4%. This is mainly the result of the high base of comparison, as August 2018 saw exceptional growth (+31.2%) ahead of the introduction of the new WLTP emissions test on 1 September 2018. The top five EU markets all recorded decreases, with the strongest drops in Spain (-30.8%) and France (-14.1%).

Over the first eight months of 2019, new-car demand in the EU went down by 3.2% compared to the same period last year, counting 10.5 million registrations in total. Germany (+0.9%) posted a slightly positive result so far this year, but the other major EU car markets saw demand falling.

Earnings expectations for European companies for the third quarter have fallen slightly as the ongoing trade war takes a toll on corporate profits, according to data released late on Tuesday.

Another drop in profits would mark the third straight quarter of deterioration confirming a corporate recession.

Companies listed on the pan-European STOXX 600 index are expected to report a 1.9% decline in earnings for the July-September quarter, compared with a 1.8% drop expected a week ago, according to the latest data from I/B/E/S Refinitiv.

Second-quarter earnings are seen declining 2.4% compared with a 2.6% drop last week, while revenues are seen rising 3.2%, unchanged from last week.

Danske Bank analysts suggest that the key focus today will be the Fed meeting, where we look for another rate cut of 25bp but no pre-commitment to further cuts.

“Another 'mid-cycle adjustment' cut is warranted by weak global growth and high uncertainty, while a still strong US consumer puts the Fed on a 'meeting-by-meeting path' to gauge the need for how much further support the economy needs. We see a risk that markets will be disappointed from what might be perceived as a hawkish rate cut. We still expect the Fed to ultimately cut five times in total until March 2020 as we look for weak global growth and high uncertainty to prevail for some time. The tensions in the Middle East have only added to the uncertainty. On the economic front we get UK inflation and final euro area inflation for August and US housing starts.”

Societe Generale Research discusses GBP outlook and flags a scope for another move lower into the Brexit deadline of October-31.

"Sterling has recovered over half of the 10% it lost in May-August, as Mrs May lost her grip on power and the market, lost its confidence in a no-deal Brexit being avoided. EUR/GBP is now trading almost exactly at its 2-year average level, in the middle of the range covered by peak optimism when Mrs May ruled out no-deal, and peak gloom when Mr Johnson convinced the markets that he was serious about leaving, with or without a deal, on October 31. Parliament appears to have tied his hands on that score but with every public utterance, the PM restates his commitment to leave one way or the other, at the end of October. Meanwhile, his sojourn in Luxembourg did not suggest that he is making much progress in getting a deal and sterling has run out of steam," SocGen notes. A move back to EUR/GBP 0.91, which could take GBP/USD back under 1.21, seems a pretty high risk in the next few weeks," SocGen adds. 

EUR/USD

Resistance levels (open interest**, contracts)

$1.1201 (1966)

$1.1178 (1980)

$1.1153 (1431)

Price at time of writing this review: $1.1064

Support levels (open interest**, contracts):

$1.1027 (13260)

$1.0987 (5096)

$1.0943 (3209)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date October, 4 is 93962 contracts (according to data from September, 17) with the maximum number of contracts with strike price $1,1050 (13260);

GBP/USD

Resistance levels (open interest**, contracts)

$1.2643 (1427)

$1.2600 (746)

$1.2575 (575)

Price at time of writing this review: $1.2484

Support levels (open interest**, contracts):

$1.2395 (475)

$1.2360 (602)

$1.2321 (781)

Comments:

- Overall open interest on the CALL options with the expiration date October, 4 is 15444 contracts, with the maximum number of contracts with strike price $1,2500 (1788);

- Overall open interest on the PUT options with the expiration date October, 4 is 15511 contracts, with the maximum number of contracts with strike price $1,1900 (1463);

- The ratio of PUT/CALL was 1.00 versus 1.00 from the previous trading day according to data from September, 17

* - 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.