Coffee With Greta: The Fed Countdown Is On


DJIA Futures: -191 (-0.6%)

SPX Futures: -27 (-0.7%)

NASDAQ Futures: -90 (-0.7%)

Good morning friends!

Futures are slipping today as the Fed is set to kick off its two-day policy meeting.

Let’s get right to it!

Fed Meeting Begins

The Central Bank begins its policy meeting today with the rate hike decision due at 2:00 p.m. ET on Wednesday. 

CME Group’s FedWatch Tool shows the market sees an 84% chance of another 75bps hike and a 16% chance of a 100bps hike.

CNBC’s September Fed Survey shows the market is anticipating a 0.75% rate hike and expects the fed funds rate to peak at 4.26% in March 2023. 

That’s up 40 basis points from the expected peak in the July survey.

Respondents expect the Fed to keep rates at that peak level for nearly 11 months.

But there is also continued fear the Fed will cause a recession. 

The survey shows a 52% probability of a recession in the U.S. over the next 12 months with a 72% probability in Europe.

Treasury Yields Surge Further

Treasury yields are surging again today in anticipation of that rate hike. 

The 2-year yield is up 6 basis points to 3.98%, a fresh 15-year high. 

The 10-year yield is up 7 basis points to 3.57%, its highest level since 2011. 

Sweden’s Central Bank approved a 100 bps rate hike today, pushing its main policy rate to 1.75%. 

The bank warned “inflation is too high” and said it is “undermining households’ purchasing power and making it more difficult for both companies and households to plan their finances.”

Housing Starts Rebound, Building Permits Fall

U.S. home construction rebounded more than expected in August. 

The Census Bureau reported housing starts jumped 12.2% to a seasonally adjusted annual rate of 1.575 million units vs 1.445 million expected.

That unexpected surge came as July starts were revised down to a SAAR of 1.404 million units from the previous 1.446 million. 

Single-family starts rose 3.4% while multi-family starts surged 28.6% as demand rises for apartments with homebuyers being squeezed by high mortgage rates. 

But the rebound is not expected to last as building permits fell sharply.

The number of permits authorized in August dropped 10% monthly to a SAAR of 1.517 million units vs 1.62 million expected. 

Single-family permits fell 3.5% while multi-family permits tumbled 18.5%. 

Ford Warns of Higher Q3 Costs

Ford (F) shares are down 4.7% ahead of the open after warning investors on Monday it expects to incur an extra $1 billion in costs during the third quarter.

The automaker said those costs are the result of inflation and continued supply chain issues. 

Parts shortages have impacted roughly 40,000 to 45,000 vehicles during the quarter, mostly trucks and SUVs, that have been unable to reach dealers.

Ford said those vehicles will be delivered to dealers in Q4 and reiterated its full-year guidance. 

Oil Prices Rise Slightly 

Oil prices are up slightly today as OPEC+ countries continue to produce less than their quotas. 

West Texas Intermediate crude futures are up just 0.1% at $86 bbl while Brent crude futures are up 0.4% at $92 bbl. 

A new document from OPEC+ shows the group fell short of its output target by 3.538 million barrels per day in August. 

That reignited supply concerns in a market that’s been focused on demand fears in recent days. 

Both contracts are on track for their largest quarterly percentage drops since the beginning of the pandemic. 

In Case You Missed It

  • Homebuilder sentiment tumbled for the ninth month in a row. The National Association of Homebuilders sentiment index dropped 3 points this month to 46. That’s the lowest reading since May 2014, excluding the plunge at the start of the pandemic. It was also lower than expectations for 47 with anything under 50 considered negative. Builders blamed higher mortgage rates for falling sentiment as labor and construction costs remain high. Nearly 25% of builders reported lowering the price of homes in September, up from 19% in August. 

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