KL Trader Investment Research Articles

Author: kltrader   |   Latest post: Wed, 28 Oct 2020, 5:48 PM


The Fed Cuts Rate for the Third Time This Year

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The Federal Reserve (Fed) cut interest rate by 0.25% to a range of 1.5% to 1.75% at the meeting last night (Wednesday 30 Oct, 2pm EDT). Following that, the Hong Kong’s monetary authority (HKMA) also cut its interest rate by 0.25% to 2%.

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Rate Cut by the Fed; HKMA Follows Suit

The Fed’s Federal Open Market Committee (FOMC) cut its benchmark funds rate by 0.25% to a range of 1.5% to 1.75%, in a move that was widely anticipated by the financial markets. This rate sets what banks charge each other for overnight lending.

In an article by CNBC (31 Oct), Fed Chairman Jerome Powell has characterized this year’s third rate cut as a “midcycle adjustment” in a maturing economic expansion. In the FOMC’s post-meeting statements, they said that they will “continue to monitor implications of incoming information for the economic outlook as it assesses the appropriate path of the target range for the federal funds rate”, which is slightly softer than its post-meeting statements earlier in June, indicating that it may pause rate cuts from here. Powell also said in a news conference that central bank officials “see the current stance of monetary policy as likely to remain appropriate”.

Further according to the article on CNBC, while consensus was around 100% for a cut at this meeting based on CME data, traders had seen only about a 25% probability of a move at the Fed’s next meeting, scheduled for 10-11 December.

Meanwhile, HKMA has cut its interest rate for the third time this year (South China Morning Post (SCMP), 31 Oct). The city’s base lending rate was cut by 0.25% to 2% effectively immediately, matching the Fed’s overnight cut of the same amount. The HKMA has cut interest rates by a total 0.75% since August; Hong Kong’s government is expected to confirm that the city has entered into a technical recession with it announces economic data for the third quarter of the year (SCMP, 31 Oct).

The HKMA’s chief executive Eddie Yue Wai-man is scheduled for a press conference about the rate cut at 9am today.

SP500 Closed Higher

The S&P 500 Index (SP500) opened lower yesterday, but rallied later in the day following the FOMC meeting to close 0.3% higher to 3,046.8 points yesterday. Meanwhile, the Hong Kong’s Hang Seng Index (HSI) closed 0.4% lower to 26,667.7 points yesterday as investors mostly stood on the sideline, pending the announcement by the Fed late last night.

Source: Macquarie Research - 31 Oct 2019

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