4:22pm: All eyes on the Fed
US stocks were largely unchanged at the end of Tuesday’s session as investors held off making any major moves ahead of the Fed’s interest rate decision.
The central bank’s meeting is expected to bring on the first reduction in interest rates since early 2020.
The Nasdaq made a modest gain of 0.2% at 17,628, buoyed by a 2.6% increase in Intel.
The Dow Jones slipped 0.2% at 41,543 points and the S&P 500 was down 0.2% at 5,624 points.
3:15pm: 25 basis points or 50 basis points?
Expectations are high going into the Federal Reserve’s September meeting, with traders anticipating an up to 50 basis point cut to interest rates.
There is now an almost two-thirds (63%) probability that the Fed will cut rates by 50 basis points, according to the CME FedWatch tool.
A week ago, the probability of a 50 basis point cut was just 34% and was 25% a month ago.
Analysts at Deutsche Bank (DB), however, expect a 25 basis point cut. They believe that while there is a “compelling risk management case” for a larger move, the central bank’s communications and the balance of data do not support this.
“[Fed chair Jerome] Powell will face a communications challenge regardless of their chosen action. If the Fed opts for a 25 basis point reduction, the chair will have to project confidence about the outlook and assuage concerns about the Fed falling behind the curve,” analysts wrote in a note to clients.
“Conversely, if they cut by 50 basis points, Powell will need to avoid sending negative signals about the economy and dissuade markets from pricing a sequence of large reductions.”
12:45pm: Stocks reverse
Stocks edged lower in the early afternoon as traders eagerly awaited the outcome of the Federal Reserve’s meeting on Wednesday, with the central bank expected to cut rates by up to 50 basis points.
After nearing record highs earlier in the session, the S&P 500 traded down 0.2% at 5,620 points.
The Dow Jones was down 0.3% at 41,506 points while the Nasdaq was down 0.1% at 17,578 points.
Meanwhile, crude oil prices rallied further from their 16-month low last week.
"The near 8% recovery rally in the crude oil price from last week's 16-month low, as the latest CFTC Commitment of Traders (COT) report shows that traders are the least bullish oil in over a decade, seems to have legs,” IG senior technical analyst Axel Rudolph commented.
“WTI is trading back around the $70 per barrel mark as Brent crude oil flirts with the $73 level.”
10:50am: Retail sales surpass expectations
Retail and food service sales increased by 0.1% in August, surpassing expectations for a 0.2% decline. Additionally, July's figures were revised upwards, showing a 1.1% rise compared to the previously reported 1% increase.
The economy has weathered the last few years’ high interest rates and high inflation much better than expected, noted Bill Adams, Chief Economist for Comerica Bank.
"Retail sales and industrial production were stronger than expected in August, another in a long string of upward surprises from US economic growth over the last two years," Adams commented.
"Many economists including this one worried that the surge in inflation in 2022 had pushed the Fed to raise interest rates so much that a recession was unavoidable, but happily the economy was more resilient than feared."
9.48am: US markets surge
Tech stocks rallied when US markets opened today. The Nasdaq 100 index added 0.6% to 19,534, led by a rare bout of bullishness from Intel Corp (NASDAQ:INTC, ETR:INL).
The troubled Silicon Valley icon added over 6% on plans to split out its foundry business into a separate subsidiary.
CrowdStrike Holdings Inc (NASDAQ:CRWD) added 3.3%, with other top tech risers including Cisco Systems Inc (NASDAQ:CSCO, ETR:CIS), Meta Platforms Inc (NASDAQ:META, ETR:FB2A, SWX:FB) and Cadence.
The Dow Jones Industrial Average added 0.2% to 41,714 and the broader S&P 500 index added 0.4% to 5,653.
On the macroeconomic front, yearly retail sales growth declined to 2.1% in August compared to 2.9% in July. On a monthly basis retail sales added 0.1%, outpacing forecasts of -0.2%.
It marks the last piece of important macro data before tomorrow’s interest rate call from the Federal Reserve.
A cut is universally expected, but analysts remain divided over whether there will be a 25bps or a jumbo 50bps reduction to the bank rate.
8.33am: Tech stocks to open in the green
US stocks look buoyant in Tuesday’s pre-market trades, suggesting optimism for a jumbo interest rate cut from the Federal Reserve on Wednesday.
Tech stocks by way of the Nasdaq 100 are up 0.56% to 19,528, while the Dow Jones Industrial Average is set to open 0.3% higher at 41,742.
Futures contracts on the S&P 500 have the wider index adding 0.35% to 5,654.
Markets have increased their expectations of a 50-basis-point rate cut from just 30% a week ago to 70% today, sparking a flurry of risk-on sentiment across the equities space.
A pending year-on-year retail sales print due shortly will provide a further insight to the trajectory of the US economy.
Back in London, the FTSE 100 blue-chip index is currently up 64 points to 8,342.