Overnight – Markets brace for Fed’s rate decision   

Stocks closed around unchanged overnight despite a stronger-than-expected retail sales report which helped allay fears of a sharp economic slowdown ahead of the Federal Reserve’s latest policy-setting meeting. 

Data released earlier in the session showed that US retail sales rose 0.1% in August on a monthly basis, better than the expected 0.2% decrease, after having climbed a revised 1.1% the prior month. This number helped reassure investors that the consumer remained relatively healthy, which could prevent a sharp economic slowdown given the importance of the retail sector to the U.S. economy.  

This economic news comes as the Federal Reserve starts its two-day policy-setting meeting, which is expected to result in a cut to interest rates at its conclusion on Wednesday. Traders were seen pricing in a 68% chance for a 50 bps reduction and a 32% chance for a 25 bps cut, CME Fedwatch showed.

Uncertainty over the scale of the cut had spurred some volatility on Wall Street in recent sessions, although both the S&P 500 and the Dow Jones Industrial Average remained close to record highs. Comments from Fed Chair Jerome Powell at the conclusion of the two-day Fed meeting will be studied carefully, as investors seek guidance of the likely extent of the easing cycle that could bring more interest rate cuts in the coming months. 

In the chip sector, US investors largely ignored the news that China had made a huge step forward in catching up to the precision manufacturing of high-end chips, by lodging a patent for EUV lithography machines, currently a monopoly held by Dutch company ASML, which has refused to sell to China. This leap in manufacturing ability will erode Nvidia, Apple & Qualcomm’s competitive advantage long-term if successful.

All eyes now turn to the FOMC rate decision meeting next Wednesday night/Thursday morning Australian time. We are expecting a 25bps cut, but the commentary that accompanies the move will likely be the main focus