Wall Street Breakfast: Super Size Me?
Super Size Me?
Cheers can be heard from the investing world as the much-anticipated Fed easing cycle finally begins. It’s been four years since the FOMC last cut rates, and 14 months of holding them steady, so today’s rate decision, press conference and policy projections will all be a big deal. There’s been much debate over how fast the Fed will move as the starting gun is fired, so stay tuned for the headlines on Seeking Alpha starting at 2 PM ET.
Soft landing? While inflation data has drifted downward toward the Fed’s 2% goal, unemployment has risen faster than expected since the last FOMC decision in July. That has led to worries by the central bank about cooling labor market conditions, which is harder to stop once demand for workers has softened. It’s even prompted to talk about a stronger level of rate cuts, but the majority of Wall Street Breakfast subscribers (79.4%) still expect the Fed to trim its benchmark lending rate by 25 basis points, compared to some (20.6%) who see a 50-bps reduction.
While the pace of the initial cut will be revealed in the coming hours, a bigger area of focus will be the federal funds rate range for the end of 2024, next year, and in the longer term. Look to the FOMC’s dot plot for that insight. In the last Summary of Economic Projections, issued on June 12, the median fed funds rate projection was 5.1% at the end of 2024 and 4.1% for 2025, and how much that changes from the prior outlooks will be exceptionally important for investors.
SA commentary: “While the near-term volatility could persist, a more accessible monetary stance should lead to improved growth and increased liquidity, a highly constructive dynamic for high-quality stocks and other risk assets,” Investing Group Leader Victor Dergunov wrote in Finally, It’s Time To Cut Rates. “Corporate earnings remain healthy, and despite the potential temporary growth slowdown in AI and other segments, we could see improving and better-than-expected earnings in future quarters.”
Easing cycle to follow lower inflation and mortgage rates
AI infrastructure
Looking to meet growing demand, BlackRock (BLK) and Microsoft (MSFT) are planning a more than $30B artificial intelligence investment fund to build data centers and energy projects. The Global AI Infrastructure Investment Partnership would be one of the biggest investment vehicles ever raised on Wall Street through Global Infrastructure Partners. Abu Dhabi-backed investment firm MGX and Microsoft are the fund’s general partners, and Nvidia (NVDA) is providing expertise. The fund aims to mobilize up to $100B in total investment potential when including debt financing. (12 comments)
Risk premium?
Secretary of State Antony Blinken is in the Middle East for the 10th time since the war in Gaza began nearly a year ago. The conversations in Cairo come after the Biden administration greenlit $1.3B in military aid for Egypt, overriding congressional requirements that the U.S. hold back some funding if adequate progress is not made on human rights. Tensions are also escalating in the region following a pager attack that was widely attributed to Israel and targeted thousands of members of the Lebanese terror group Hezbollah, but oil doesn’t appear to be pricing in any risk at the moment. (2 comments)
Next strike
As organized labor notches more wins, around 45K dockworkers have begun threatening industrial action at U.S. East Coast and Gulf of Mexico ports. “A strike on Oct. 1 seems more likely as time is running out,” warned the International Longshoremen’s Association. Negotiations for a new labor contract have stalled, but the United States Maritime Alliance, which represents port employers including ZIM (ZIM) and Maersk (OTCPK:AMKBY), is willing to resume talks “at any time.” A looming strike has raised supply chain concerns ahead of the busy holiday season, with retailers bringing in products earlier or rerouting shipments.