[True Burn Finance] Morning Briefing on September 19: Federal Reserve sharply cuts interest rates by 50 basis points; Mid-Autumn Festival holiday domestic consumption expenditure slightly increases compared to pre-pandemic levels

The Federal Reserve decisively cut interest rates by 50 basis points on Wednesday, making a sharp policy U-turn to support the job market, but Chair Jerome Powell hinted at the press conference that there was no rush for another significant rate cut. The Fed's dot plot showed the median forecast for the federal funds rate at year-end dropped to 4.38%, and the median forecast for the end of 2025 fell to 3.38%.

Overnight Highlights

U.S. stocks closed slightly lower on Wednesday, well below their intraday highs, after the Fed cut rates by 50 basis points—more than usual—as it grapples with a weakening labor market. The dollar initially fell but then rebounded after the Fed's decision, reversing its decline after Chair Powell's press conference. Gold retreated from record highs, while copper prices rose. Oil prices declined as the Fed's rate cut sparked concerns about the health of the U.S. economy, and investors attributed the drop in crude inventories to temporary weather effects.

International News

· The Federal Reserve decisively cut interest rates by 50 basis points on Wednesday, making a sharp policy U-turn to support the job market, but Chair Jerome Powell hinted at the press conference that there was no rush for another significant rate cut. The Fed's dot plot showed the median forecast for the federal funds rate at year-end dropped to 4.38%, and the median forecast for the end of 2025 fell to 3.38%. Nearly half of Fed officials favor at least another 50 basis points of cuts in the final two meetings this year, a slower pace of easing than traders expected.

· U.S. mortgage rates fell to their lowest level in two years last week, triggering a surge in home purchase and refinancing applications. The continued decline in mortgage rates may further boost homebuilder confidence, which rose in September for the first time in six months.

· China reduced its holdings of U.S. Treasuries in July, and holdings in Belgium—seen as a custodian location for China—also declined. Although China, the U.K., and Japan slightly reduced their U.S. Treasury holdings in July, total overseas holdings rose for the third consecutive month, benefiting from increased holdings by the Cayman Islands, Luxembourg, and Singapore.

· Polls show Democratic presidential candidate Kamala Harris leading Trump in swing states Pennsylvania and Michigan.

· The head of Germany's central bank said the European Central Bank has made good progress in reducing inflation but needs patience to fully achieve the 2% target.

· The Japanese government issued its September economic assessment, stating that the economy, while somewhat weak, is recovering at a moderate pace.

Greater China News

· Chinese Vice Premier He Lifeng spoke with U.K. Chancellor Rachel Reeves about restarting the China-U.K. economic and financial dialogue and expanding cooperation in finance, green economy, biopharmaceuticals, and artificial intelligence.

· Consumer spending during China's Mid-Autumn Festival holiday only slightly rebounded from pre-pandemic levels, failing to ease investor concerns about China's economic woes. Total domestic tourism spending rose 8% from 2019 to 51 billion yuan, with trips up 6.3% to 107 million. However, per capita spending was only 477 yuan, up 1.6% from five years ago, according to Bloomberg calculations. Analysts predict daily consumption during the National Day Golden Week may decline compared to September.

· Chinese corporate exchange rate expectations reversed in August, with banks recording a surplus in client foreign exchange settlements for the first time in over a year. Due to factors like Fed rate cut expectations, the pessimistic outlook in the RMB forex market reversed in August, with both onshore and offshore RMB rising nearly 2% for the month. Corporate forex settlements increased, while purchase demand declined. The State Administration of Foreign Exchange said cross-border capital flows have stabilized, and domestic forex supply and demand are balanced. See: [Market Review] How to Understand This Round of RMB Appreciation?

· China's Ministry of Finance announced the cancellation of import tariff exemptions for 34 agricultural products from Taiwan starting September 25.

· Typhoon "Pulasan," the 14th this year, is expected to make landfall in coastal China between Thursday afternoon and evening, affecting Zhejiang, southern Anhui, southern Jiangsu, and Shanghai.

· Bloomberg: Due to slowing demand, Volkswagen and SAIC's 40-year joint venture, SAIC Volkswagen, is reportedly preparing to close a factory in Nanjing as early as next year.

· $CHINA LIFE(02628.HK) has received approval from the National Financial Regulatory Administration to issue capital replenishment bonds of up to 35 billion yuan.

Commodities & Forex Markets

· The dollar fluctuated but narrowed its losses after Fed Chair Powell said not to take the 50-basis-point cut as a new norm. Spot gold turned lower after hitting a record high, as Powell signaled no rush for further significant cuts.

· Oil edged lower in choppy trading as signs of weak demand outweighed the impact of the Fed's rate cut and Middle East tensions.

Earnings & Economic Data Focus

· U.K. Bank Rate Decision (Sep 19) (Previous: 5.00%, Forecast: 5.00%)

· U.S. Initial Jobless Claims (Sep 14) (Previous: 230K, Forecast: 230K)

Source: Goldhorse Capital Extramile

Author: Terry Chow