💹 Should the Federal Reserve have cut rates more than 50bp?

Good Morning!

China's central bank just cut its 14-day repo rate by 10 basis points, giving stocks a modest boost. Meanwhile, the S&P 500's defying September's typical gloom, up 1% this month and a whopping 19% year-to-date. Keep your eyes peeled for a parade of Fed speakers and Friday's PCE inflation data – it could be a game-changer for November's rate decision. Oh, and don't forget about those potential rate cuts from the Swiss and Swedish central banks. It's shaping up to be quite the financial rodeo!

In today’s email:

• FedWatch: Should the fed have cut more?

• Bitcoin: back around $64k, ready to make next leg up?

• PBoC: Another rate cut in the bag

• Gold: Another record set, $2600 now in the rearview

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THE BIG IDEA

The Fed's cautious approach to rate cuts may be insufficient, with a case for more aggressive easing to stimulate the economy effectively

Ever wondered if the Fed should've just gone all-in and slashed rates by a whopping 200 basis points this week? Before you start questioning our sanity, hear us out.

The Fed's aiming for that sweet spot of 3% – the Goldilocks zone where rates are neither too hot nor too cold for the economy. And let's face it, Powell's made it crystal clear he's not exactly thrilled about any more wobbles in the job market. So, if we're heading for lower rates anyway, why not rip off the Band-Aid?

Now, we know what you're thinking. "Slow down, cowboys!" And you're not wrong. There are solid reasons for pumping the brakes. The economy's not in crisis mode (yet), and nobody wants to spook the markets. Plus, let's be real – pinpointing that perfect neutral rate is like trying to catch a greased pig.

But here's the kicker:

Our financial landscape has changed. Those pre-Covid low rates are locked in tight, meaning it takes longer for policy shifts to ripple through the economy. Just look at mortgage rates – they've barely budged compared to the Fed's aggressive hikes.

So, while a 200-point cut might sound like financial skydiving without a parachute, there's a method to the madness. In this new world, a cautious approach of baby steps might not cut it. We could be looking at more 50-point cuts sooner than you think.

Don't get us wrong – we're not calling for financial anarchy here. But as the inflation battle winds down, saving the economic recovery might just require a bolder strategy. Sometimes, you've got to go big or go home.

MARKETS AT A GLANCE

TOP NEWS

Precious metals see increased speculative interest amid geopolitical risks and Fed rate cuts, while oil prices recover and agricultural commodities show mixed trends

Speculators are piling into precious metals! With Middle East tensions simmering and the Fed cutting rates, gold's looking shinier than ever. Meanwhile, oil's bouncing back above $75/bbl, and China's hinting at economic support. In the fields, Ukraine's grain harvest is up 7% year-over-year, while France's corn crop holds steady.

China signals potential economic stimulus with a rate cut and rare briefing announcement, sparking market optimism

China's making moves! The PBOC just cut a key short-term rate and announced a rare economic briefing, hinting at more stimulus to come. Markets are buzzing with anticipation, as bond yields dip and stocks climb. With the Fed's recent rate cut easing pressure, China's got room to maneuver. All eyes are on tomorrow's briefing for clues on how they'll tackle sluggish growth and boost consumer confidence.

ECB's Kazaks highlights services inflation as a greater concern than slow growth, while acknowledging future rate cuts

ECB's Kazaks is keeping a hawk's eye on those stubborn service prices. Despite overall inflation cooling to 2.2%, services are still running hot at 4%. Kazaks warns we can't let our guard down, even as the economy stumbles. But don't worry, rate cuts are on the horizon – it's just a matter of when, not if. The ECB's playing a delicate balancing act between taming inflation and avoiding an economic slowdown.

CRYPTO

Bitcoin approaches one-month highs following the Fed's rate cut, while most currencies remain stable due to Japan's holiday

Bitcoin's on a roll! The crypto king is flirting with one-month highs, riding the wave of the Fed's hefty rate cut. Meanwhile, the yen and other major currencies are taking a breather with Japan's markets closed for Autumnal Equinox Day. The dollar's holding steady against the yen, and traders are betting big on more Fed cuts. Keep an eye on Japan's upcoming leadership vote – it could shake things up for the yen.

Bitcoin could see an "explosive move" by the end of 2024, with an intermediate target of $85,000, according to crypto analyst Titan of Crypto

This prediction is based on a breakout in Bitcoin's weekly relative strength index (RSI), signaling potential momentum for further gains. The analyst also noted that historical data shows Bitcoin performs well in Q4 when September closes in the green. Popular trader Skew highlighted the importance of holding $61,000 as a key level to confirm Bitcoin's bullish trend.

Democratic nominee Kamala Harris expressed her support for crypto and innovative technologies during a fundraising dinner in New York City

She emphasized her plan to foster an "opportunity economy" by collaborating with various sectors and creating a safe, transparent environment for tech advancements, including AI and digital assets. Uniswap Labs CEO Hayden Adams supported Harris' remarks, suggesting her approach could be more innovation-friendly compared to the current administration. Meanwhile, Donald Trump continues his crypto-themed campaign initiatives, promoting DeFi and using Bitcoin in public appearances.

HSBC has successfully tested quantum-safe technology for trading tokenized physical gold

HSBC id partnering with Quantinuum to secure digital assets against future quantum computing threats. This trial demonstrates HSBC’s commitment to integrating advanced security for both institutional and retail investors. The bank also introduced HSBC Gold Token for retail clients, enabling fractional gold ownership. The quantum-safe tech aims to protect digital assets from potential cyber threats, such as "store now, decrypt later" attacks, showcasing the future of secure, blockchain-based financial services.

GOLD

Saudi Arabia is reportedly making secret gold purchases, amassing an estimated 160 tonnes since 2022, signaling a potential shift away from reliance on the US dollar

Analysts suggest that the kingdom’s move aligns with broader BRICS nations’ strategy, possibly indicating a future return to the gold standard. This shift challenges the dominance of the petrodollar system established in the 1970s. As global financial dynamics evolve, both gold and Bitcoin are emerging as alternative stores of value.

DAILY ECONOMIC CALENDAR (ET)

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