Aurelia Butler

NEW YORK (Reuters) – The Federal Reserve is in focus next week, as uncertainty swirls over how much the U.S. central bank will cut interest rates at its monetary policy meeting and the pace at which it will reduce borrowing costs in coming months.The S&P 500 index is just 1% shy of its July record high despite weeks of market swings sparked by worries over the economy and seesawing bets on the size of the cut at the Fed’s Sept. 17-18 meeting.After fluctuating sharply throughout the week, Fed funds futures on Friday showed traders pricing an almost equal chance of a 25 basis point cut and a 50 basis point reduction, according to CME Fedwatch. The shifting bets reflect one of the key questions facing markets today: whether the Fed will head off weakening in the labor market with aggressive cuts, rather than take a slower wait-and-see approach.”The market wants to see the Fed portray a level of confidence that growth is slowing but not falling off a cliff,” said Anthony Saglimbene, chief market strategist at Ameriprise Financial (NYSE:AMP). “They want to see … that there’s still this ability to gradually normalize monetary policy.”Investors will focus on the Fed’s fresh economic projections and interest rate outlook. Markets are pricing in 115 basis points of cuts by the end of 2024, according to LSEG data late on Friday. The Fed’s June forecast, by comparison, penciled in one 25-basis point cut for the year.Walter Todd, chief investment officer at Greenwood Capital, said the central bank should opt for 50 basis points on Wednesday. He pointed to the gap between the 2-year Treasury yield, last around 3.6%, and the Fed funds rate of 5.25%-5.5%.That gap is “a signal that the Fed is really tight relative to where the market is,” Todd said. “They are late in starting this cutting cycle and they need to catch up.”Aggressive rate cut bets have helped fuel a Treasury rally, with the 10-year yield down some 80 basis points since the start of July to around 3.65%, near its lowest level since June 2023.But if the Fed continues to project significantly less easing than the market does for this year, bonds will have to reprice, pushing yields higher, said Mike Mullaney, director of global markets research at Boston Partners.Rising yields could pressure stock valuations, Mullaney said, which are already high relative to history. The S&P 500 was last trading at a forward price-to-earnings ratio of 21 times expected 12-month earnings, compared to its long-term average of 15.7, according to LSEG Datastream.”I find it implausible that you’re going to get P/E multiple expansion between now and year-end in a rising (yield) environment,” Mullaney said. With the S&P 500 up about 18% so far this year, it may not take much to disappoint investors with next week’s Fed meeting. Focus has turned to the employment market as inflation has moderated, with job growth coming in less robust than expected in the past two monthly reports. The unemployment rate jumped to 4.2% in August, one month after the Fed projected it reaching that level only in 2025, said Oscar Munoz, chief US macro strategist at TD Securities. That indicates the central bank may need to show it will move aggressively to bring down rates to their “neutral” level, he added.”If the (forecast) disappoints, meaning they turn more conservative and they don’t ease as much … I think the market might not take it well,” Munoz said. More

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Former New York Federal Reserve President Bill Dudley said on Thursday there was a strong case for a 50-basis-point interest rate cut at the Fed’s Sept. 17-18 rate-setting meeting.Investors on Friday reacted to news articles in the Financial Times and the Wall Street Journal, which highlighted that the size of the first cut could be a close call for Fed officials, triggering speculation of a larger cut. More

(Reuters) -The head of the International Monetary Fund gave her support to regional director Rodrigo Valdes on Friday, a day after the IMF had announced he would step aside from negotiations with Argentina.”I have complete confidence in Rodrigo Valdes to lead the work of IMF’s Western Hemisphere Department,” said IMF Managing Director Kristalina Georgieva in a statement.”He is an outstanding economist, a dedicated international civil servant, and a wonderful colleague. I trust Rodrigo’s judgment on all matters, including on deciding to delegate the Fund’s program negotiations with Argentina to his deputy, Luis Cubeddu.”The IMF said on Thursday that Valdes would delegate Argentine talks to other officials, in an announcement that came after Argentina’s president Javier Milei had criticized Valdes’ work. Cubeddu and mission chief for Argentina Ashvin Ahuja were named as contacts with Argentine authorities.Thursday’s move was welcomed by Milei’s right-wing administration, who have criticized Chilean economist Valdes as a leftist who did not understand their program.Argentina is the largest debtor to the IMF and has indicated it will request a new program as the current $44 billion agreement ends later this year. More

NEW YORK (Reuters) – Nvidia (NASDAQ:NVDA)’s huge stock rally is still exerting an outsized influence over the S&P 500 index , reinforcing concerns that broader markets could be hurt if the chipmaking giant’s fortunes turn.This year’s 140% surge in shares of Nvidia, whose chips are seen as the gold standard in artificial intelligence applications, has accounted for about a quarter of the S&P 500’s 17% gain.Nvidia showed its powerful hold over Wall Street on Wednesday, when the stock’s 8.2% rally helped drive the S&P 500 to its biggest intraday upswing in nearly two years. The index reversed a 1.6% loss to end the day up 1.1%.Nvidia jumped after CEO Jensen Huang flagged strong demand for the company’s chips, boosting its market value by more than $200 billion and accounting for 44% of the S&P 500’s surge that day, data from Nomura showed.Nvidia’s rally “got the whole market moving,” said Chris Murphy, co-head of derivative strategy at Susquehanna Financial Group.The S&P 500 has struggled to make headway this year on Nvidia’s down days, eking out gains only 13% of the time when the chipmaker’s shares have closed weaker, a Reuters analysis showed.This year, the index has failed to rise more than 1% on any day when Nvidia’s shares ended lower. In 2020, there were 13 such instances.For many investors, the recent moves revived worries over a small cohort of stocks dictating the market’s direction.Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL) and Nvidia have a combined weighting of nearly 20% in the S&P 500, though shares of the first two have gained far less this year than Nvidia’s. While recent strength in non-tech sectors has stirred hopes of a broadening rally, a sustained sell-off in any of the tech megacaps could still badly hurt broader markets, analysts said.”If Nvidia is weak because demand for their product goes down then that’s going to tank the whole market,” said Susquehanna’s Murphy.OPTIONS BOOSTTraders are keeping a close eye on Nvidia’s options, which have played a major role in boosting recent moves.Nvidia recently accounted for about 22% of the overall volume of individual stock options traded daily, up from around 5% at the start of the year, making it the most actively traded stock in the options market on most days, Trade Alert data showed.Nvidia’s gains are amplified when traders rush into upside call options. When buying of these options surges, market makers who sell these contracts are on the hook to buy and deliver more Nvidia shares at the agreed price, leaving them “short gamma,” in options parlance.The additional purchases to cover risk lift the stock even higher.”You do see the market keen to buy upside calls when it’s working,” said Chris Weston, head of research at online broker Pepperstone. “When it’s hot, these flows absolutely make a difference.”Nvidia is not the first stock to have such a powerful sway over the rest of the market.Tesla (NASDAQ:TSLA), another favorite of nonprofessional traders, displayed similar characteristics a few years ago when the options market amplified the electric vehicle maker’s stock swings, Nomura strategist Charlie McElligott said.But AI seems to have stirred the imagination of investors even more than EVs.”The mania that is the actual paradigm shift which AI represents across the corporate landscape, is just making it a magnitudes-larger theme,” he said. “Tesla was never close to that.””AI is just its own animal,” McElligott said. More

The ministry’s economic policy secretariat calculation marks a sharp upward revision from the 2.5% estimate in July, incorporating both the positive surprise in second-quarter activity and expectations of stronger performance for the rest of the year, albeit at a slower pace.In 2023, Brazil’s GDP grew by 2.9%.Speaking at a press conference, economic policy secretary Guilherme Mello said some key variables, including investment and industry, have performed better than expected.The Finance Ministry also adjusted its inflation forecast for the year to 4.25%, up from the previous 3.9%, approaching the upper limit of the official target of 3%, with a tolerance range of 1.5 percentage points.Mello argued that the adjustment for consumer prices is not tied to stronger activity or labor market pressures but rather to external factors, such as the severe droughts affecting much of the country.”This obviously impacts energy prices in particular, as well as the prices of certain foods,” he said.”I don’t believe it’s possible to say that interest rates weren’t restrictive enough or that the upward inflation revision is related to elements from the real economy.”The new GDP projection, which will serve as input for the government’s bi-monthly revenue and expenditure report due next week, is more optimistic than private economists’ 2.68% expansion forecast in the central bank’s weekly survey.Earlier on Friday, a central bank index showed better-than-expected economic activity in July, continuing a series of robust indicators supported by a strong labor market.The scenario has strengthened bets that the central bank will begin a tightening cycle next week, hiking interest rates by 25 basis points after holding them at 10.5% for two consecutive policy meetings. For 2025, the ministry’s economic policy secretariat slightly lowered its projected GDP growth to 2.5% from 2.6% and raised the expected inflation rate to 3.4%, up from the previous estimate of 3.3%. More