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NEW YORK (Reuters) – The Federal Reserve will likely not cut U.S. interest rates as deeply as the bond market expects due to a resilient economy and inflation remaining sticky, the BlackRock Investment Institute said in a note on Monday.The U.S. central bank is expected to cut interest rates for the first time in over four years on Wednesday, with speculation over the size of the first rate cut creating volatility across financial markets in the run-up to the decision.Traders in rates futures are betting on about 120 basis points in cuts this year and a total of 250 basis points by the end of 2025. This would bring interest rates to about 2.8%-2.9% by the end of next year from the current 5.25%-5.5% range.A reduction in interest rates of this magnitude reflects recession fears that are overdone, as well as expectations of a sustained decline in inflation which, instead, is likely to cool off only temporarily, said the institute, an arm of BlackRock, the world’s largest asset manager.”As the Fed readies to start cutting, markets are pricing in cuts as deep as those in past recessions. We think such expectations are overdone,” it said.Despite a recent uptick in unemployment, employment is still growing, and supply constraints will continue to put upwards pressure on prices, it said.”An aging workforce, persistent budget deficits and the impact of structural shifts like geopolitical fragmentation should keep inflation and policy rates higher over the medium term,” it said.The institute is underweight, or bearish, on the prospects of short-term U.S. Treasuries as current yields reflect expectations of deep rate cuts.It maintains an overweight on U.S. stocks, instead, on optimism around the impact of artificial intelligence.(Reporting by Davide Barbuscia; Editing by Andrea Ricci) Continue reading →

When the Federal Reserve meets Wednesday, officials are expected to mark the end of an era as they cut interest rates for the first time in four years and chart a course for lower rates over the next two years.“This is a big meeting,” said former Kansas City Fed president Esther George. “It’s one that’s been foreshadowed since late last year. It’s long been expected.”The central bank is expected to lower rates by a quarter percentage point to a new range of 5.0-5.25% from its 23-year high of 5.25% to 5.5% on Wednesday when their policy meeting concludes. The actions will officially mark the termination of the most aggressive inflation-fighting campaign since the 1980s.Investors bets on how deeply the Fed will cut rates for the first time have been fluctuating widely. As of Friday afternoon, traders were pricing in nearly 50-50 chance of the Fed trims its policy rate by 25 basis points verses a steeper 50 basis points. Those odds compare with an 85% chance for a 25 basis point cut on the back of key inflation and jobs data over the past week.Read more: What the Fed rate decision means for bank accounts, CDs, loans, and credit cardsThe Fed is set to cut rates roughly six weeks before the presidential election, something Republican presidential candidate and former President Trump and other Republicans have said the central bank should refrain from until after the election.The rate cut will mark the first in a series of cuts, as the central bank’s new era of easy money is expected to last through 2025 and 2026. That shift will ripple through the US economy by making it cheaper for Americans to borrow what they need to buy houses and cars or credit card purchases.Businesses will also have an easier time taking out loans to fund their operations.Fed officials will release new interest rate projections, known as the “dot plot,” for how many rate cuts officials see in the remainder of this year and next.Cuts at last? Federal Reserve Chairman Jerome Powell s in Washington, D.C., last month. (Nathan Howard/Getty Images) (Nathan Howard via Getty Images)Luke Tilley, veteran chief economist for Wilmington Trust, expects the Fed to cut by 25 basis points — and to lay out a path to cut twice more this year, also in 25 basis point increments, followed by cuts next year at six out of the Fed’s eight policy meetings. He added that if the Fed can cut rates by 50 basis points in subsequent meetings without spooking markets, it will.Tilley believes the Fed is behind the curve when it comes to cutting rates because “there would be no talk of 50 right now if they had just started reducing in July and they were on a slower path.” Still, Tilley said, it doesn’t matter whether the Fed lowers rates by 75 basis points or 100 basis points overall this year.“It’s more the trajectory, how they talk about it and how they frame it because their words count for more than their actions,” Tilley said, referencing markets pricing in future Fed actions.As for ex-Kansas City Fed chief George, she at a minimum she expects a rate cut of 25 basis points every meeting for the rest of the year. (There are three, including Wednesday’s.)She estimates the Fed will cut rates by 1.25 to 1.5 percentage points before they may pause and take stock of how the level on rates is relative to how the economy is faring. But the thing she’s really watching for is “this is a committee that will have to develop a narrative around the 50 basis point rate cut idea.”Meanwhile, Fed governor Chris Waller has said that he’s open-minded about the size and pace of cuts based on the data — and if the data suggests the need for larger cuts, then he will support that. Waller said he was a big advocate of front-loading rate hikes when inflation accelerated in 2022, and he will be an advocate of front-loading rate cuts if that is appropriate.A big meeting: Federal Reserve Chairman Jerome Powell (R) with New York Fed president John Williams and then-Kansas City Fed president Esther George in 2018. (REUTERS/Ann Saphir) (REUTERS / Reuters)The story behind the storyOfficials are looking to cut rates, having gained confidence inflation is likely heading back down to their 2% target. The latest reading on inflation, measured by the Consumer Price Index, showed inflation continues to move down slowly, marking the fifth consecutive good inflation report. After fears inflation was stalling in the first quarter, officials had said they needed more than a quarter’s worth of good inflation data to gain confidence inflation was truly falling. Inflation, based on CPI, rose at 3.2% in August and July, compared with 3.3% in June, 3.4% in May, and 3.6% in April.Read more: Cell phones, furniture, used cars: Here’s where prices are easing up as inflation cooldown continuesInflation expectations are also dropping. The difference in the yield on a 10-year inflation-protected government bond and a standard bond of the same maturity, a measure of expected inflation, is around the lowest since early 2021. Inflation expectations over the next two years are for CPI inflation of just 1.5%, under the Fed’s 2% target.Job watchAt the same time, the job market is cooling, as employment decelerated over the summer, with 118,000 jobs created in June, 89,000 in July, and 142,000 in August — all below the average monthly gain of 202,000 over the prior 12 months.The weakening has caused Fed officials to turn more attention toward the labor market and away from inflation.Fed Chair Jay Powell said in a speech in Jackson Hole, Wyo., in late August that the Fed “will do everything we can to support a strong labor market as we make further progress toward price stability.” He noted that the Fed does not “seek or welcome further cooling in labor market conditions” and that the current level of the policy rate gives the Fed “ample room” to lower rates in response to any weakening in the job market.Fed watchers expect Powell to reiterate many of these messages communicated in Jackson Hole.No recession, but danger lurks: Wilmington Trust’s Luke Tilley. (Tim Leedy/MediaNews Group/Reading Eagle via Getty Images) (MediaNews Group/Reading Eagle via Getty Images via Getty Images)PredictionsOn Wednesday, Fed officials will also release forecasts for unemployment, inflation, and the economic outlook. Powell will hold a press conference at 2:30 p.m. ET.George said she sees a couple of scenarios, including one where Powell could set the stage for cutting by larger increments. “He could tell a story around 50,” said George. “He could come out at this meeting and say, ‘We’ll move more aggressively to make sure we do our part around the labor market.'”But Wilmer Stith, bond fund manager for Wilmington Trust, said, “I think Powell plays it right down the middle.” Stith added that the Fed is very conscientious of the pain associated with a higher unemployment rate, but also conscientious of the cost of living for the average American.EY’s chief economist Gregory Daco also agreed that “gradualism” will prevail at the meeting, but said that there may be a reference to larger rate cuts at upcoming meetings.Are recession fears still looming? There was concern at the July jobs report that the economy had entered recession, but a rebound in the August jobs tally allayed concerns.Wilmington Trust’s Tilley expects the job market to continue expanding.“We do not think the labor market is rolling over into a recession. That said, it is the biggest concern,” he said.Tilley still believes the soft landing is in place, but said, “The economy is slowing and is vulnerable to a shock.”And it wouldn’t necessarily take a big disturbance. Tilley’s examples: a big oil shock that could hurt consumer spending or a plunge in the stock market that could cause businesses to pull back on hiring. He also said some policies of presidential candidates Donald Trump and Kamala Harris — like tariffs across the board or tax hikes — could end up hitting the consumer next year.Jennifer Schonberger is a veteran financial journalist covering markets, the economy, and investing. At Yahoo Finance she covers the Federal Reserve, cryptocurrencies, and the intersection of business and politics. Follow her on X @Jenniferisms.Click here for the latest economic news and indicators to help inform your investing decisionsRead the latest financial and business news from Yahoo Finance Continue reading →

By Gertrude Chavez-DreyfussNEW YORK (Reuters) – Futures on the fed funds rate, which measures the cost of unsecured overnight loans between banks, have priced in a nearly 60% chance of a 50 basis-point rate cut by the Federal Reserve on Wednesday, LSEG calculations showed.That was up from 45% last Friday and from 25% following the release of an in-line U.S. consumer price index report last week.The Fed will hold a two-day policy meeting starting on Tuesday and is widely expected to reduce the benchmark overnight interest rate currently in the 5.25% to 5.50% range. The rate reduction, however, has turned into a coin flip between 50 and 25 bps over the last few days.For 2024, rate futures have factored nearly 120 bps in easing, and about 250 bps in cuts by September of 2025.Up until last Friday, the odds were pretty much tilted toward a 25-bp cut. But reports by the Wall Street Journal and Financial Times late Thursday saying a 50-bp rate reduction is still an option, and comments from former New York Fed President Bill Dudley arguing for an outsized cut, triggered a pivot in market expectations.On Monday, Dudley reiterated his stance on the need for the Fed to do a big cut on Wednesday. In an opinion piece on Bloomberg News, the former Fed official noted that the Fed’s dual mandate of price stability and maximum sustainable employment has become more balanced, which suggests monetary policy should be neutral, neither restrictive nor boosting economic activity.”Yet short-term interest rates remain far above neutral. This disparity needs to be corrected as quickly as possible,” Dudley wrote.But whether the Fed goes 50 or 25 bps, Boris Kovacevic, global macro strategist at Convera in Vienna, said it does not really matter in the end “given the long lag and transmission mechanism, but it does matter in terms of how they want to be perceived.””If they go 50, there is chance that the Fed has some information that investors don’t have and that recession risks are more likely than currently anticipated and priced in.”(Reporting by Gertrude Chavez-Dreyfuss; editing by Jonathan Oatis) Continue reading →

The Fed faces split rate cut expectations as markets price in 50% probability for both 25 bps and 50 bps move this Wednesday.Bitcoin has pulled back from above $60,000 amid rate cut uncertainty.The coming week is shaping up to be that rare one when markets are left guessing about the Federal Reserve’s impending interest rate move. The peak uncertainty seems to have put brakes on bitcoin’s {{BTC}} price bounce.The Fed is widely expected to announce an interest rate cut on Sept. 18, kicking off the so-called easing cycle, which has historically supported risk assets, including bitcoin.Traders, however, are split on the size of the impending rate cut, setting the stage for a potential volatility explosion in financial markets after Wednesday’s rate decision. At press time, the Fed funds futures showed a 50% chance of the Fed reducing rates by 25 basis points (bps) to the 5%-5.25% range. At the same time, markets saw a similar probability of a bigger 50 bps rate cut to the 4.7%-5% range.Bitcoin’s upward momentum from recent lows of $52,530 has stalled amid the rate cut uncertainty. The leading cryptocurrency by market value has pulled from $60,660 to $58,700, at the time of writing.”Rarely has the market gone into the Fed meeting with maximum uncertainty (halfway between 25bps and 50 bps),” Marc Chandler, chief market strategist at Bannockburn Global Forex and author of “Making Sense of the Dollar,” told CoinDesk in an email.”I suspect a 50 bps cut would not be good for risk assets on ideas that the Fed is more concerned about the economy and would seem to be acknowledging that it should have cut in July,” Chandler added.Several analysts have warned that a 50 bps cut could signal panic, denting demand for riskier assets, including cryptocurrencies. The probability of a 50 bps cut rose last week after Wall Street’s Journal’s Nick Timiraos published an article the size of the rate cut was up for debate. A few Fed policymakers also raised the specter of a bigger move, bringing cheer to risk assets.”The market had been settling on a 25 bps rate cut before what some suspect is a planted story by Fed officials to put 50 bps back on the table Thursday. The market took the bait and ratcheted up the odds of not only one, but two half-point cuts and a quarter-point cut in the three remaining meetings of the year,” Chandler said, adding that traders should also keep an eye on the Fed’s summary of economic and interest rate projections.”The market is currently pricing in a sub-3% Fed funds target by the end of next year. Also, at 4.3% in July (4.2% in August), the unemployment rate is at the Fed’s long-term equilibrium level. Will this be changed?,” Chandler quipped. Continue reading →

MelpomenemEditor’s note: Originally published at tsi-blog.com on September 13, 2024 The US yield curve is considered to be a good leading indicator of US recession, with an inversion of the curve invariably occurring prior to the start of a recession. However, the Wolf Street article posted here questions the yield curve’s reliability. The article notes that part of the US yield curve recently ‘uninverted’, which is true. What’s not true is the claim in the article that since 1998 the US yield curve failed twice by warning of recessions that didn’t occur. According to the article, the yield curve’s 2019 inversion was a failure because even though there was a recession in 2020, the recession was the result of a pandemic and not a business cycle downturn. This is strange reasoning, to put it mildly. The only way that you could argue logically that the yield curve’s 2019 inversion was a failure would be if you could re-run history to show that in the absence of the COVID pandemic, there would not have been a recession. Since this is not possible, the 2019 inversion should not be viewed as a failure. Either it was a success or it should not be counted. Also, according to the article, there was a yield curve inversion in 1998 that was not followed by a recession. The problem here stems from interpreting a multi-day spike into inversion territory as a recession signal. This problem goes away if you base your analysis on monthly closing or monthly average prices, which generally is what should be done with long-term indicators. Here is a monthly chart showing that since the late 1960s, every inversion of the US 10year-3month yield spread was followed by a recession. Consequently, if this cycle’s yield curve inversion does not lead to a recession, then it will be the first failure of this type (the first false positive) in more than 50 years. Note, though, that the monthly chart of the 10-year – 3-month yield spread shows that there was no yield curve inversion prior to the 1990 recession, so this could be viewed as a false negative. Regardless of whether or not this cycle’s yield curve inversion leads to a recession, a yield curve inversion/uninversion clearly isn’t a useful trading signal. The time between the warning signal and the projected outcome is simply too long and too variable. Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors. Continue reading →

(Bloomberg) — Treasuries rallied and the dollar fell after fresh US data kept investors guessing on the size of an expected rate cut from the Federal Reserve next week.Most Read from BloombergThe policy-sensitive two-year Treasury yield dropped six basis points and the dollar retreated 0.3%, falling for a third day. The Stoxx 600 Index rose 0.5%, with Danish stocks hitting a record high for the first since November 2021. US futures pointed to modest gains.Investors remain divided on the magnitude of the Fed’s anticipated pivot to policy easing starting at next week’s meeting. The debate has continued after data Thursday showed that the US producer price index picked up slightly in August after the previous month’s numbers were revised lower. Meanwhile, an uptick in applications for unemployment benefits renewed concerns about a weakening labor market.“If I were in the room, I would actually be pushing for a 50 basis-point rather than a 25 basis-point cut,” Evercore Chairman Emeritus Ralph Schlosstein said in an interview with Bloomberg TV. “The balance of risks has shifted from a risk that inflation doesn’t come down as we hope, to a risk that unemployment grows up faster than we would hope.”Traders are now betting on 33 basis points of cuts from the Fed on Sept. 18, versus 31 basis points on Thursday and 26 basis points on Wednesday.His view echoed that of former New York Fed President William Dudley, a Bloomberg Opinion columnist and adviser, and chair of the Bretton Woods Committee. “I think there’s a strong case for 50,” he said Friday in Singapore. “I know what I’d be pushing for.”Thursday’s wholesale inflation data followed the more closely watched consumer price index, which showed underlying inflation accelerated in August. Yet policymakers have made it clear that they’re currently highly focused on softness in the labor market, which is more likely to drive policy discussions in the months ahead.Key events this week:Eurozone industrial production, FridayJapan industrial production, FridayU. Michigan consumer sentiment, FridaySome of the main moves in markets:StocksThe Stoxx Europe 600 rose 0.5% as of 9:18 a.m. London timeS&P 500 futures rose 0.1%Nasdaq 100 futures were little changedFutures on the Dow Jones Industrial Average were little changedThe MSCI Asia Pacific Index rose 0.5%The MSCI Emerging Markets Index rose 0.5%CurrenciesThe Bloomberg Dollar Spot Index fell 0.3%The euro rose 0.2% to $1.1092The Japanese yen rose 0.9% to 140.61 per dollarThe offshore yuan rose 0.3% to 7.0975 per dollarThe British pound rose 0.1% to $1.3140CryptocurrenciesBitcoin fell 0.3% to $58,043.87Ether fell 0.2% to $2,347.98BondsThe yield on 10-year Treasuries declined five basis points to 3.63%Germany’s 10-year yield declined three basis points to 2.12%Britain’s 10-year yield declined three basis points to 3.76%The yield on 2-year Treasuries declined six basis points to 3.58%CommoditiesBrent crude rose 0.5% to $72.32 a barrelSpot gold rose 0.4% to $2,568.62 an ounceThis story was produced with the assistance of Bloomberg Automation.–With assistance from Sybilla Gross, Richard Henderson and Divya Patil.Most Read from Bloomberg Businessweek©2024 Bloomberg L.P. Continue reading →

A look at the day ahead in European and global markets from Kevin BucklandEuropean traders who went to bed thinking a quarter-point Fed rate cut was a lock for next week may well have had a rude awakening on this Friday the 13th, with the odds for a super-sized half-point reduction back at nearly a coin toss.It started with separate reports in the Financial Times and the Wall Street Journal that both said the Sept. 18 decision remained “a close call”. Then former New York Fed President Bill Dudley, who remains highly influential, said at an event in Singapore that there’s “a strong case” for a 50 bps reduction.That put the dollar on the defensive, as it slipped back towards its lowest level this year against the yen and lost additional ground on the euro. Two-year Treasury yields were back below 3.6% in Asian hours.Gold pushed to a new all-time peak at $2,570.Reactions in the equities markets were mixed. Hong Kong’s Hang Seng was up more than 1% and Australian stocks were also higher.But for the Nikkei, a decline was pretty much a given with the yen that much stronger. South Korea also slumped and mainland Chinese stocks struggled. It’s worth noting that all three of those markets are heading into a long holiday weekend, with South Korean traders not back at work until next Thursday.A very early look at pan-European STOXX 50 futures was positive, pointing up 0.3%.There’s little on the data docket in Europe on Friday to distract from Fed-focused speculation, which has boosted the chance of a 50 bps cut to 43% versus 28% early in the Asian morning. Some CPI prints are continuing to roll in, including from France and Greece. Data is also due on the euro region’s industrial production.No central bank speeches are on the calendar, with the Fed and the Bank of England – which will announce policy next Thursday, with no change expected – in blackout periods. Meanwhile, the ECB has moved mostly into the rear-view mirror after Thursday’s well-telegraphed rate cut, and no clear guidance from President Christine Lagarde on when to expect the next one.Key developments that could influence markets on Friday:-France, Greece, Poland, Slovakia CPI (August)-Euro zone industrial production (July)(By Kevin Buckland; Editing by Edmund Klamann) Continue reading →

FilographGold has staged an impressive rally thus far in 2024, with the metal recently hitting an all-time high. We believe that recent price levels could be sustainable, potentially supported by likely Federal Reserve interest rate cuts, the possibility of a “higher for longer” inflationary environment, and recently robust physical market demand. In our view, gold miners could be particularly well positioned to capitalize on elevated bullion prices, based on what we see as attractive valuations and the potential for increased M&A activity. Key Takeaways Gold’s function as a store of value has stood the test of time, helping owners maintain their purchasing power over thousands of years. Gold’s year-to-date (YTD) rally to all-time highs was driven by both the physical and financial markets. Current prices may be sustainable, with the Fed funds futures market currently pricing in a high probability of interest rate cuts this year.1 Gold miners and explorers have historically offered higher leverage to rising gold prices, with possible increased M&A activity potentially driving outsized returns for miners and explorers, such as those in the Global X Gold Explorers ETF (GOEX), relative to physical gold. Gold as a Store of Value Gold’s long-term track record as a store of value is unmatched by any other asset, standing the test of time and preserving its value for thousands of years. The most pronounced example of this is the salary of Centurion soldiers under Roman Emperor Augustus, who were paid 38.58 ounces of gold per year.2 This equates to nearly $94,000 today, which is roughly equivalent to the salary of a U.S. Army Captain with six years of experience.3,4 Gold’s scarcity, as well as the metal’s physical characteristics, including its natural beauty, durability, and malleability, can help explain its lasting allure over time. Gold, which was historically used as a means of trade or money, has also maintained its value despite all major currencies no longer being pegged to the metal, appreciating nearly 70x since the U.S. abandoned the gold standard in 1971.5 Although gold’s price appreciation in U.S. dollar (USD) terms has been remarkable, its ability to protect purchasing power in other currencies is even more impressive, illustrated in the chart below. This track record as a store of value has also led to gold becoming a “flight to quality” beneficiary, often providing downside protection during times of economic, geopolitical, and financial uncertainty. Market Update The gold market has defied expectations thus far in 2024, rallying in the face of the Federal Reserve’s higher for longer monetary policy stance. This strong price appreciation also occurred despite U.S. investors selling, with the two largest U.S.-listed physical gold ETFs seeing decreases in their number of physical gold holdings over the previous two years.6 We see this price appreciation being driven by a mix of both the physical and financial markets. First, physical market demand has remained robust, with major central banks, such as the People’s Bank of China (PBOC) and the National Bank of Poland, being large buyers of the bullion.7 Although we have seen the PBOC slow purchases over recent months, which is not unprecedented given the strong YTD rally, the central bank remains committed to increasing gold’s share of its reserves, which stood at 4.9% in June versus the global average of 16%.8 In addition to global central bank demand, we have also seen strong retail buying across many geographies, especially in Asia. This strong physical market demand has helped offset the aforementioned selling pressure from U.S.-listed physical gold ETFs. On the financial market side, gold’s historical inverse relationship with real interest rates also provides insight into the rally.9 On the surface, the decline in U.S. YOY inflation seen in the first half of 2024 pushed real rates higher, which should have weighed on the price of gold. However, we believe the market is looking beyond this, pricing in a higher-for-longer inflation scenario, with the Federal Reserve potentially embarking on an easing cycle. This should push real yields lower and possibly add to the sustainability of the gold rally. Heightened geopolitical tensions could also be adding to the bullion’s appeal, with its “flight to quality” attribute providing diversification to portfolios. Why Gold Explorers in this Context? Gold miners and explorers have historically offered higher leverage to a change in gold prices (moving more dramatically than the underlying commodity). This is due to these companies’ abilities to use operating leverage to increase profits. Unlike investing directly in gold, miners and explorers may be able to expand production as profit margins grow. That said, being exposed to the operational risks of individual companies poses risks, especially when gold prices are falling, as the aforementioned leverage cuts both ways, and miners and explorers may see steeper declines than bullion prices when they fall. Despite this relationship, when looking at year-to-date performance, six out of eight pure play gold mining ETFs delivered weaker returns than the underlying commodity price. While the spot price of gold was up 20.65% YTD through September 6th, pure play gold mining ETF returns ranged from as low as 10.40% up to 23.51%.10 As a result, we believe the market has yet to price in a potential higher-for-longer gold price environment, providing potential upside to miners/explorers on a valuation basis if current bullion prices prove sustainable. We also believe smaller gold miners and explorers are particularly interesting at this juncture. Historically, as the chart below shows, higher gold prices drove significant market consolidation within the gold mining sector. Although we have seen some deals in the past 12 months, such as Newmont (NEM) acquiring Newcrest and Goldfields acquiring Osisko, this appears to lag past cycles. As a result, we see room for a high gold price environment, declining production profiles for certain large players, the fragmented nature of the industry, and the cheaper valuations that the market has assigned small-cap gold miners relative to large caps driving consolidation moving forward. This could open up the potential for outsized returns for smaller miners and explorers. Alternatively, from a portfolio construction perspective, gold miners can offer diversification. This could be especially compelling now, with geopolitical risks remaining elevated. Investors should be aware that, similar to direct physical gold ownership, physical gold ETFs are taxed at the collectibles rate, meaning that the top long-term rate can be 31.8% versus 23.8% for shares of gold miners and gold miner ETFs.11 In both cases, short-term capital gains are taxed as ordinary income, with rates ranging from 10% to 37% depending on income levels.12,13 Conclusion Gold’s extensive track record as a store of value is unmatched, providing potential portfolio diversification during times of economic uncertainty and heightened geopolitical risk. Despite the strong year-to-date rally, we think the potential for Fed rate cuts, a higher-for-longer inflation environment, and robust physical market demand all point to potential price sustainability. While GOEX invests across the market-cap spectrum (the free float market cap must be at least $200 million for companies that are not constituents and at least $100 million for companies that are constituents), we believe the fund could benefit from its smaller-cap gold miners and explorers, which stand to be outsized beneficiaries of the current gold price environment, with valuations yet to price in the potential sustainability of the rally, while higher prices could possibly spark further market consolidation. Related ETF GOEX – Global X Gold Explorers ETF Click the fund name above to view current performance and holdings. Holdings are subject to change. Current and future holdings are subject to risk. Footnotes 1CME FedWatch. Data as of August 15, 2024. 2Erb, Claude B. and Harvey, Campbell R. (2024, May 7). Is There Still a Golden Dilemma? 3Ibid. 4Bloomberg LP. Data as of August 15, 2024. 5Ibid. 6Bloomberg LP. Data as of August 14, 2024. SPDR Gold Shares (GLD) and iShares Gold Trust (IAU). GLD and IAU are not investment companies registered under the Investment Company Act of 1940 (the “1940 Act”) and not subject to regulation under the Commodity Exchange Act of 1936 (the “CEA”). As a result, shareholders of these funds do not have the protections associated with ownership of shares in an investment company registered under the 1940 Act or the protections afforded by the CEA. 7Gold.org. (2024, Jul 30). Gold Demand Trends Q2 2024. 8Reuters. (2024, Jul 16). China’s Gold Buying Break Seen as Fleeting Given its Long-Term Needs. 9Money.com. (2024, Feb 14). What Drives the Price of Gold? 10Bloomberg LP. Data as of September 6, 2024. Based on YTD performance of eight non-leveraged pure-play gold mining ETFs compiled by ETF.com (AUMI, GOAU, SGDJ, GOEX, SGDM, RING, GDX, and GDXJ) relative to the spot price of gold “XAU CURNCY”. 11Wall Street Journal. (2024, May 31). You Bought Gold at Costco. What Are the Taxes When You Sell it? 12Ibid. 13Internal Revenue Service. (2023, Nov 9). IRS Provides Tax Inflation Adjustments for Tax Year 2024. Glossary Real Interest Rate: The real interest rate is equal to the difference between the stated interest rate and the inflation rate. GOEX does not invest directly in or hold gold. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information is not intended to be individual or personalized investment advice and should not be used for trading purposes. Please consult a financial advisor for more information regarding your situation. Investing involves risk, including the possible loss of principal. Diversification does not ensure a profit or guarantee against a loss. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Narrowly focused investments may be subject to higher volatility. There are additional risks associated with investing in Gold and the Gold exploration industry. Shares of ETFs are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. Beginning October 15, 2020, market price returns are based on the official closing price of an ETF share or, if the official closing price isn’t available, the midpoint between the national best bid and national best offer (“NBBO”) as of the time the ETF calculates current NAV per share. Prior to October 15, 2020, market price returns were based on the midpoint between the Bid and Ask price. NAVs are calculated using prices as of 4:00 PM Eastern Time. The returns shown do not represent the returns you would receive if you traded shares at other times. Indices are unmanaged and do not include the effect of fees, expenses or sales charges. One cannot invest directly in an index. Carefully consider the funds’ investment objectives, risks, and charges and expenses before investing. This and other information can be found in the funds’ full or summary prospectuses, which may be obtained by calling 1-888-GX-FUND-1 (1.888.493.8631), or by visiting globalxfunds.com. Read the prospectus carefully before investing. Global X Management Company LLC serves as an advisor to Global X Funds. The Funds are distributed by SEI Investments Distribution Co. (SIDCO), which is not affiliated with Global X Management Company LLC or Mirae Asset Global Investments. Original Post Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors Continue reading →

WASHINGTON (AP) — U.S. wholesale price increases mostly slowed last month, the latest evidence that inflation pressures are cooling enough for the Federal Reserve to begin cutting interest rates next week.The Labor Department said Thursday that its producer price index — which tracks inflation before it reaches consumers — rose 0.2% from July to August. That was up from an unchanged reading a month earlier. But measured from a year ago, prices were up 1.7% in August, the smallest such rise since February and down from a 2.1% annual increase in July.Excluding food and energy prices, which tend to fluctuate from month to month, so-called core wholesale prices moved up 0.3% from July and have risen 2.3% from August 2023.Taken as a whole, last month’s wholesale price figures suggest that inflation is moving back toward the Fed’s 2% target level. After peaking at a four-decade high in mid-2022, the prices of gas, groceries and autos are either falling or rising at slower pre-pandemic rates. On Wednesday, the government reported that its main inflation measure, the consumer price index, rose just 2.5% in August from a year earlier, the mildest 12-month increase in three years.The latest inflation figures follow a presidential debate Tuesday night in which former President Donald Trump attacked Vice President Kamala Harris for the price spikes that began a few months after the Biden-Harris administration took office, when global supply chains seized up and caused severe shortages of parts and labor.During the debate, Trump falsely characterized the scope of the inflation surge when he claimed that inflation during the Biden-Harris administration was the highest “perhaps in the history of our country.” In 1980, inflation reached 14.6% — much higher than the 2022 peak of 9.1%.The producer price index can provide an early sign of where consumer inflation is headed. Economists also watch it because some of its components, notably healthcare and financial services, flow into the Fed’s preferred inflation gauge — the personal consumption expenditures, or PCE, index.In its fight against high inflation, the Fed raised its benchmark interest rate 11 times in 2022 and 2023, taking it to a 23-year high. With inflation now close to their target level, the Fed’s policymakers are poised to begin cutting their key rate from its 23-year high in hopes of bolstering growth and hiring.A modest quarter-point cut is widely expected to be announced after the central bank meets next week. Over time, a series of rate cuts should reduce the cost of borrowing across the economy, including for mortgages, auto loans and credit cards. Continue reading →

manassanant pamaiBy Kelvin Wong Since our last publication, the price actions of Gold (XAU/USD) have managed to stage a rebound above the US$2,353 bullish reversal level and resumed its impulsive upmove sequence to print a recent fresh all-time level of US$2,352 on 20 August. Considering the upcoming key US inflation data release later today, where the core inflation rate for August is expected to show signs of a deceleration trend continuation of the inflationary conditions in the US, coming in at 3.2% y/y, a similar pace to 3.2% recorded in July, which was a three-month low. Through the lens of technical analysis, several positive elements have emerged that may support a potential bullish breakout for Gold (XAU/USD) after four weeks of tight-range trading. 10-year US Treasury real yield has staged a major bearish breakdown Fig 1: US 10-YR Treasury real yield major & medium-term trends as of 11 Sep 2024 (Source:TradingView) The 10-year US Treasury real yield is measured by subtracting the 10-year breakeven inflation rate derived from 10-year US Treasury Inflation-Protected Securities (TIPS) from the nominal 10-year US Treasury yield. If the 10-year US Treasury real yield is trending downwards, it implies that the long-term real opportunity cost of holding Gold (XAU/USD) is reduced as Gold is a non-income bearing asset, and vice versa when the 10-year US Treasury real yield trends upwards (see Fig 1). Right now, the 10-year US Treasury real yield has just breached below major support at 1.62% (in place since late December 2023) which suggests that Gold (XAU/USD) has become more valuable as its associated long-term opportunity costs may be further reduced given the next medium-term support of the 10-year US Treasury real yield rests at 1.38%. Hence, it may propel more demand for Gold (XAU/USD) which in turn is likely to drive up its price. Medium-term momentum remains positive for Gold Fig 2: Gold (XAU/USD) major & medium-term trends as of 11 Sep 2024 (Source:TradingView) The price actions of Gold (XAU/USD) have continued to oscillate within its medium-term ascending channel in place since the 6 October 2023 low of US$1,810 and are supported by a rising 50-day moving average that is also confluences closely with its key medium-term pivotal support at US$2,435. In addition, the daily RSI momentum indicator has continued to display a series of “higher lows” above its 50 level and has not reached an overbought condition. These positive technical elements suggest that upside momentum may be building up for a potential bullish breakout for Gold XAU/USD, a clearance above US$2,532 may see the next medium-term resistance zone coming in at US2,640/715 in the first step (see Fig 2). On the other hand, a break below US$2,435 negates the bullish scenario to kickstart a potential multi-week corrective decline sequence within its medium-term and major uptrend phases to expose the next support at US$2,359, and below it sees an increased risk for an extension of the corrective decline towards the US$2,285 long-term pivotal support (also close to the 200-day moving average). Original Post Continue reading →

uschoolsHistorically, September is the worst month for the stock market and this year is no exception. The first week of September was quite negative. In fact, the S&P500 (SP500) dropped 4.25%, the worst performance since 1953. A recovery has been in sight for a few days now, but investors remain doubtful about the future. In particular, September 18 will be a key date for understanding new monetary policy decisions, and this is likely to be the main market mover in the coming weeks. Typically, when the Fed meeting is this close, analysts almost all agree on what the next move will be, but in this case, it is different. Everyone agrees on the first cut in September (later than other central banks), but not everyone agrees on the amount of the cut. It is the latter issue that this article will mainly focus on, since a 25 basis points cut would fuel the soft-landing scenario; a 50 basis points cut would increase the chances of a hard landing. What to expect on September 18 As mentioned, at present the probability of rates remaining unchanged is 0%. No one expects monetary policy to remain tight, which is why I will not specifically discuss this scenario. Currently, there are too many red flags that have historically predicted past recessions, so it is important to loosen the grip on the cost of borrowing. The Sahm Recession Indicator is pointing above 0.50, while the yield on 10-year T-Bonds is back above 2-year T-Bonds. Powell himself was clear during the Jackson Hole Symposium about a rate cut starting in September: The time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks. We will do everything we can to support a strong labor market as we make further progress toward price stability. Rejecting the scenario that involves no rate cut, the most likely ones remain either a 25 basis points cut or a 50 basis points cut. While the difference between these two scenarios is minimal in numerical terms, the implications they may have on financial markets are potentially very different. First scenario: a 25 basis points cut At the time I am writing this article (Sept. 11 03:00 CT), the probability of a 25 basis points cut is 67%: compared to last month there has been an increase of 18%. CME Group The market is increasingly discounting this scenario and considers a 50 basis points cut less likely. The reason is attributed to the recent labor market data, which is slightly positive when compared to recent months. Investing.com From May to August, expectations for the unemployment rate were always too optimistic, but in September analysts’ estimates proved correct. The unemployment rate today is 4.20%, still higher than May’s 3.90% but slightly down from August. This figure was enough to trigger a burst of enthusiasm in the financial markets and make the hard landing scenario less likely. If the unemployment rate does not rise, there cannot be a recession, but it is worth noting that the Sahm Rule Indicator still signals a potential deterioration of the economy in the coming months. The September figure may have been only a short-term improvement, and starting in October the negative trend of recent months may continue. Personally, I also consider a 25 basis point cut the most likely scenario. Inflation is headed toward the 2% target, but it has not yet been fully beaten, which is why I don’t think the Fed will venture a 50 basis points cut. Federal Reserve Bank of St. Louis Typically, inflation cycles have several rebounds over the years, and to avoid what happened in the 1980s I think the Fed wants to reduce rates gradually: Inflation is now much closer to our objective, with prices having risen 2.50% over the past 12 months. After a pause earlier this year, progress toward our 2% objective has resumed. My confidence has grown that inflation is on a sustainable path back to 2%. Chair Jerome H. Powell, Jackson Hole Economic Symposium. Overall, the scenario of a 25 bps cut is both the most likely and the most positive. In fact, the Fed would give the market a signal that it has everything under control, both in terms of inflation and the labor market. Gradual approaches are always the best, but at the same time, they are very difficult to implement. Historically, the rate cut is a complicated period because mistakes are not allowed, even in communication. A more alarming tone during conference calls may suggest an out-of-control situation and potential panic-cutting. From this point of view, I expect that on Sept. 18 the tone will be very calm and the 25 basis point cut will be intended as a precautionary measure to avoid the economy weakening too much. Monetary policy is done more with words than actions, so every single statement Powell makes will be immediately discounted by the market. The rate cut will probably not have a linear pattern, so I expect the Fed to follow the ECB from this point of view: there may be meetings with no cuts. TradingView This statement is supported by the futures market: by the end of 2025, the Fed Funds Rate is expected to be 2.78%, about 10 cuts of 25 basis points each. Typically, the FOMC holds 8 meetings a year, so we are talking about 10 cuts of 25 basis points each over the next 11 meetings. Finally, what will happen to the S&P500 should this scenario materialize? I don’t have a crystal ball, but I think a strong rally is unlikely since the market has already discounted much of this optimism in current prices. Second scenario: a 50 basis points cut The scenario of a 50 basis points cut is less likely, about a 33% chance. This is 18% lower than in the previous month. CME Group At first glance, this scenario could be intended as the more optimistic, after all, cutting rates more means giving a bigger boost to economic growth. In reality, it is exactly the opposite, and we noticed this in the disastrous early days of August when this scenario was the more likely of the two. The problem with cutting rates so much in September lies in the underlying message the Fed would give to the market: a 25 basis point cut is meant to be precautionary, and a 50 basis point cut is meant to be curative. There is an abysmal difference between the two concepts because the former does not shift the equilibrium, while the latter does. To better grasp the concept, you can compare restrictive monetary policy to a car about to run into an obstacle. If the braking is done gradually and well in advance, there will be no harm to the passengers, but if the braking happens at the last second someone will be hurt. When a central bank cuts rates quickly it means that something is broken in the economy and an immediate change of direction is needed. At that point, the problem of inflation would be put on the back burner and the main economic indicators such as GDP and unemployment rate would be the main aspects influencing market performance. Although the probability of this scenario is not that low, I, personally, consider it highly improbable. I do not think the Fed will make the mistake of starting the restrictive monetary policy with a 50 basis point cut, as this would complicate this month even more. As mentioned in one of my previous articles, I still hold the view that the first cut is coming a little too late, and we risk panic cutting in early 2025. Overall, should this scenario play out, I expect a negative reaction from the market and we may touch early August levels. Of course, this is just my expectation and not an encouragement to sell everything before September 18. My strategy remains unchanged no matter what: hold great companies in the portfolio for the long term. Conclusion In my view, the Fed Funds Rate will be cut by 25 basis points on September 18 and the market reaction will be flat/slightly positive. No rate cut is out of the question, while a 50 basis point cut would fuel market concerns in a month that is already off to a bad start. What is certain is that the Fed will follow the other central banks and start cutting rates, but interestingly, the bond market is already far ahead. By the end of 2025 futures expect total cuts of 250 basis points, which is quite controversial. To date, the stock market valuation discounts primarily a soft landing scenario, but the bond market thinks differently. An overall rate cut of 250 basis points in just over a year I think coincides more with a recessionary period rather than a soft landing, yet this does not worry investors. We are all hoping for a solid and growing economy in the coming months, but there are some issues to be clarified, many of which will be the subject of the September 18 meeting. I expect Powell to give more guidance on the change in monetary policy, so as to give the market something to believe in. At that point, the challenge will be to fulfill the promises. Finally, I conclude this article with an interesting statistic. Before long there will be the first rate cut, but how has the S&P500 performed in similar periods? As already stated, it depends on the speed with which the rate cut took place. Charles Schwab, Bloomberg, Federal Reserve, Ned Davis Research Inc. When it was slow and gradual, the average maximum drawdown was 5.50% and 7.40%, respectively in the 6 months and 12 months following the first cut. When there was panic-cutting, the average maximum drawdown was 10.90% and 20.70%, respectively in the 6 months and 12 months following the first cut. Should there be a 50 basis points cut on September 18, it would increase the chances of a double-digit collapse over the following months. In all this, however, there is good news: the S&P500 tends to perform positively in the 12 months following the rate cut. Charles Schwab, Bloomberg, and the Federal Reserve. So, there might be a drawdown, but in the past, the S&P500 (except in 2001 and 2007) has always recovered its losses within the year. This may not necessarily be the case this time as well, but it is certainly a statistic in favor of the most optimistic. Continue reading →

WASHINGTON (Reuters) – U.S. consumer prices rose marginally in August, but underlying inflation showed some stickiness, which could discourage the Federal Reserve from delivering a half-point interest rate cut next week.The consumer price index increased 0.2% last month after climbing 0.2% in July, the Labor Department’s Bureau of Labor Statistics said on Wednesday. In the 12 months through August, the CPI advanced 2.5%. That was the smallest year-on-year rise since February 2021 and followed a 2.9% increase in July.Economists polled by Reuters had forecast the CPI gaining 0.2% and rising 2.6% year-on-year. Though inflation remains above the U.S. central bank’s 2% target, it has slowed considerably, allowing policymakers to focus more on the labor market in their quest to sustain the economic expansion.Government data last week showed nonfarm payrolls increasing below expectations in August but the unemployment rate falling to 4.2% from near a three-year high of 4.3% in July, reducing the odds of a 50 basis point rate cut and boosting the chances of a quarter-point reduction.The labor is cooling amid a significant moderation in hiring, reducing the risks of inflation reigniting.Early on Wednesday, financial markets saw a roughly 29% probability of a 50 basis points rate cut at the Fed’s Sept. 17-18 policy meeting, according to CME Group’s FedWatch Tool. The odds of a quarter-point rate reduction were around 71%.The central bank has maintained its benchmark overnight interest rate in the current 5.25%-5.50% range for a year, having raised it by 525 basis points in 2022 and 2023.Annual consumer price growth has slowed considerably from a peak of 9.1% in June 2022 as higher borrowing costs curb demand.Excluding the volatile food and energy components, the CPI climbed 0.3% in August after rising 0.2% in July. In the 12 months through August, the so-called core CPI increased 3.2%. That followed a 3.2% gain in July.Some economists cautioned that lingering stickiness in core inflation argued against a half-point rate cut next Wednesday.(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama) Continue reading →