S&P Global — 1 October 2024
Daily Update: October 1, 2024
Markets Anticipated Cut, but Surprised by Scale
By Nathan Hunt
Start every business day with our analyses of the most pressing developments affecting markets today, alongside a curated selection of our latest and most important insights on the global economy
On Sept. 18, the US Federal Reserve announced a benchmark lending rate cut of 50 basis points, reducing the rate to between 4.75% and 5.00%. Although Fed bankers are loath to provide simple justifications for their actions, it seemed clear to market participants that a slowing labor market was a threat to the “soft landing” the Fed had been pursuing since the cycle began. While the official unemployment rate remains a healthy 4.2%, the US Bureau of Labor Statistics reported that only 142,000 jobs were added in August, nearly 20,000 below economists' expectations. With disappointing jobs numbers in both July and August, and inflation steadily veering toward the Fed’s 2% target, the central bank decided it was time to change course.
The markets anticipated this move. The Treasury yield curve had been inching back to normal after a difficult 12 months. A year ago, the two-year Treasury yield was trading about 70 basis points above the 10-year yield. This is called an inverted yield curve, in which investors receive higher yields for shorter-duration bonds. Prior to the September rate cut announcement, Treasury markets seemingly anticipated a rate cut, with the benchmark 10-year Treasury yield trading slightly above the two-year yield once again.
Institutional investors also began buying up equities in August, anticipating that some of the larger publicly traded companies stood to benefit from a rate cut. According to S&P Global Market Intelligence, institutional investors were net sellers of stocks from the beginning of 2024 until the August turnaround.
While a rate cut was forecast, its scale of 50 bps was beyond what many economists expected. Before the announcement, S&P Global predicted three rate cuts of 25 bps each before the end of 2024.
The markets reacted to the larger cut with considerable enthusiasm. The S&P 500 and the Dow Jones Industrial Average closed at all-time highs Sept. 19. Because the Fed is perceived to have lowered interest rates in response to a weaker labor market, many investors believe that it will respond to rising unemployment with further rate cuts. Stocks hit a trough in August after the unexpectedly weak job statistics. But now, many companies that took a hit to their valuations are seeing a significant rebound.
The Fed’s decision to cut rates is also believed to be providing cover for other central banks, particularly in Asia-Pacific and emerging markets, to begin their own easing cycles.
Today is Tuesday, October 1, 2024, and here is today’s essential intelligence.
US State Elections Could Lead To Clean Energy Policy Shifts
The upcoming US elections could lead to significant shifts in states' clean energy policies, reflecting the sharp party-line divisions across the country. States where Democrats hold the governorship and majorities in both houses of a legislature, a level of control known as a "trifecta," tend to mandate a renewable portfolio standard or net-zero emission standards. Republican-leaning states and states with Republican trifectas typically prefer that markets and utility companies determine the types of energy sources they want in their generation mix.
—Read the article from S&P Global Commodity Insights
Japan's Rate Hikes Could Stabilize Sovereign Support
The end of Japan's negative interest rate policy could stabilize sovereign credit support, if further monetary policy tightening progresses smoothly. The benefits are clear. Higher interest rates and consistently positive inflation could boost banks' financial performances and fiscal revenue. The Bank of Japan (BOJ) also regains short-term interest rates as a policy tool after years of relying on less conventional monetary instruments. This could improve confidence in its ability to manage economic and financial volatility.
—Read the article from S&P Global Ratings
US Housing Market: Home Prices Climb To New Record High In July
US home prices rose to yet another record high in July, although the overall pace of price appreciation slowed. The S&P CoreLogic Case-Shiller US National Home Price NSA Index, covering all nine US census divisions, increased 5.0% year over year in July compared with an annual gain of 5.5% in the previous month.
—Read the article from S&P Global Market Intelligence
Reshoring Special Report: Vietnam sees strongest reshoring-related growth over past year
Companies in the Malaysia, Mexico, Turkey and Vietnam manufacturing PMI® panels were invited to take part in a special reshoring survey in May 2024. Firms offered their insights surrounding the impact of reshoring on order books, their expectations for the year ahead and anticipated challenges. The data were also analysed by detailed sector, region and company workforce size. In short, the strongest increase in reshoring-related sales (domestic and exports) in the past year was seen in Vietnam, while manufacturers in Mexico and Vietnam were the most bullish about their ability to capitalise on reshoring opportunities over the coming 12 months. In all cases, large firms were most likely to have seen demand improve as a result of reshoring and were most optimistic.
—Read the article from S&P Global Market Intelligence
Listen: Daniel Yergin Looks Ahead: CERAWeek 2025
As we look ahead to CERAWeek 2025, Daniel Yergin joins Atul Arya in the inaugural episode of the second season of the CERAWeek Podcast. Their conversation explores the complex interplay of global events shaping the energy landscape — covering topics like energy security, technological innovations, and the North-South divide — setting the stage for our collective at CERAWeek discussions this March.
—Listen and subscribe to the podcast from S&P Global
Fuel For Thought: The US Auto Market - Oems And Captive Lenders Face New Challenges
It's been a turbulent four years for the US auto industry, from the COVID-19 pandemic to inventory fluctuations and supply chain disruptions. But unfortunately for some of the industry's most important stakeholders, the turbulence isn't over yet. Automakers and their captive financing groups are facing intensified competition and difficulty attracting customers, due to several converging trends. These range from a recent surge in vehicle inventory and affordability concerns to fluctuating incentives and evolving consumer behaviors.
—Read the article from S&P Global Mobility
Webinar: Examining the Impact on Key US Business Sectors through 2024 and Beyond (Oct. 22, 2024)
The upcoming US elections are significant for a variety of industries, as the outcome has the potential to bring about significant changes in policies and regulations. Of particular concern are key areas such as energy, technology and finance, which are highly sensitive to shifts in administration. The election outcome may change the market, investment climate and consumer confidence. It is important for businesses to understand and prepare for the possible opportunities and challenges that lie ahead. Join S&P Global analysts as they discuss the potential opportunities and challenges of the US elections to key business sectors.
—Register for the webinar from S&P Global Market Intelligence