Uncertain 25bps Rate Cut: Who Will Collapse First, Bond or Stock Market?

On Wednesday (October 16th), Morgan Stanley indicated that the Federal Reserve will continue to cut interest rates in November, but policymakers are cautiously assessing the situation as inflation is no longer cooling rapidly. The Federal Reserve is now focusing on the labor market rather than pursuing a 2% inflation target. Most Federal Reserve policymakers gave the green light for further rate cuts in the coming months last week, while the Atlanta Fed chair suggested that a rate cut might be skipped in November. The stock market has not yet realized this, but the bond market appears to be starting to rise in the long term as higher inflation expectations are being priced in. The U.S. CPI inflation for September rose slightly more than expected, while the PPI month-on-month growth rate remained unchanged last month.

Investors currently estimate that there is an 89% chance the Federal Reserve will cut rates by 25 basis points at the policy meeting on November 6th to 7th, abandoning expectations for a 50 basis point cut following strong September employment data and other optimistic economic indicators. The US Dollar Index fluctuated to 103.20; non-US currencies rebounded, with the Australian dollar reaching 0.6690 against the US dollar, the euro fluctuating near 1.0890 against the US dollar, and the offshore renminbi reaching 7.12. Spot gold consolidated near $2,667, and spot silver came to $31.60. Crude oil fell to around $71.00.

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Fundamentals: The European Central Bank will make its third interest rate cut this year at its meeting on Thursday this week, as policymakers have indicated that inflation risks are easing faster than expected. The overall inflation rate in the eurozone for September fell to 1.8%, already below the central bank's 2% target. The core inflation rate fell to 2.7%, the lowest level in two and a half years. These figures continue to decline overall after the European Central Bank cut interest rates by 25 basis points in June and again by 25 basis points in September.

Technical analysis: The euro against the US dollar is fluctuating at a lower level on the H4 scale and is operating below the 48-day bull-bear line. In addition, the MACD lines and volume bars are converging below the zero axis. Currently, the currency market not only sets the interest rate cut for the European Central Bank's October meeting at 25 basis points but also expects the central bank to cut rates by 50 basis points at the last meeting in December.

Resistance and support levels:

First resistance level: 1.0950 First support level: 1.0840

Second resistance level: 1.1000 Second support level: 1.0790Fundamentals: Economists believe that after strong growth in the first two quarters, the UK economy may still slow down in the second half of 2024, but this slowdown is not weak enough to change the mindset of the Bank of England. For now, the Bank of England considers the greater risk to be persistent inflation rather than weak GDP growth. However, as economic activity cools in 2025 and households continue to save rather than spend, the central bank's balance of concerns may begin to tilt towards growth prospects.

Technical Analysis: The British Pound against the US Dollar has rebounded from a low level on the H4 timeframe and returned to the vicinity of the 48-day bull-bear boundary. Additionally, the MACD lines and volume bars are expanding below the zero axis. The pace of further economic slowdown will depend on the impact of fiscal plans on economic growth in the budget on October 30th.

Resistance and Support Levels:

First Resistance Level: 1.3130 First Support Level: 1.3020

Second Resistance Level: 1.3180 Second Support Level: 1.2970

Fundamentals: Surveys show that although nearly 90% of economists still expect the Bank of Japan to raise interest rates before the end of March next year, a majority of economists believe that the Bank of Japan will forgo another rate hike this year. The published survey results highlight the challenges the Bank of Japan faces in advancing policy normalization, as most central banks globally are inclined towards lowering interest rates, and there is uncertainty about the monetary policy preferences of the new political leadership.

Technical Analysis: The US Dollar against the Japanese Yen has fluctuated and fallen on the H4 timeframe, operating near the 48-day bull-bear boundary. Additionally, the MACD volume bars and lines are gradually expanding above the zero axis. It is unlikely that the Bank of Japan will raise interest rates again before the end of December when the next fiscal year's budget is being formulated. By the time the Bank of Japan releases its quarterly outlook report in January next year, the conditions for a rate hike will be in place.Resistance and Support Levels:

First Resistance Level: 149.80 First Support Level: 148.20

Second Resistance Level: 150.70 Second Support Level: 147.40

Fundamentals: The Australian dollar against the US dollar has declined recently due to resilient US data, which raises hopes for a soft landing and suggests that the Federal Reserve may reduce the magnitude of rate cuts, providing upward support for the US dollar. This, in turn, suppresses the performance of major non-US dollar currencies, including the Australian dollar. Investors will next focus on the Australian employment data on Thursday. Economists expect that the employment population will increase by 25,000 in September, with the unemployment rate remaining unchanged at 4.2%.

Technical Analysis: The Australian dollar against the US dollar has rebounded at the H4 level and is gradually approaching the 48-day moving average line that separates bulls and bears. Additionally, the MACD lines and volume bars are converging below the zero axis. In the months leading up to this, positive Australian employment data has almost led the market to abandon bets on rate cuts before the end of the year. If this week's employment data continues to perform well, it may provide some support for the Australian dollar.

Resistance and Support Levels:

First Resistance Level: 0.6740 First Support Level: 0.6650

Second Resistance Level: 0.6780 Second Support Level: 0.6610Fundamentals: Inflation and economic data in the United States continue to be key factors affecting gold prices. Although statements from Federal Reserve officials suggest that there will be no significant policy shifts in the short term, the market remains focused on the direction of future monetary policy. If the data is strong, the Federal Reserve may continue to maintain high interest rates, which will put continuous pressure on gold. On the other hand, weak economic data from China, especially the ambiguity of fiscal stimulus policies, has failed to effectively boost investor confidence, leading to short-term selling pressure on gold prices.

Technical Analysis: Gold is experiencing a phased rebound at the H4 level and continues to operate above the 48-day bull-bear boundary. Additionally, the MACD lines and volume bars are forming a divergence convergence near the zero axis. The impact of China's economic slowdown on gold demand cannot be ignored, hence the market maintains a cautious attitude towards the subsequent performance of gold.

Resistance and Support Levels:

First Resistance Level: 2686.00

First Support Level: 2650.00

Second Resistance Level: 2705.00

Second Support Level: 2630.00

Fundamentals: On Tuesday, the international crude oil market showed a significant downward trend, with the main cause being the gradual easing of market concerns over the risk of disruption to Iranian oil supplies, coupled with expectations of slowing future demand, which dampened the momentum of oil price rebounds. Recent fluctuations in oil prices have been influenced by the situation in the Middle East and global demand expectations. Previously, the escalation of conflict between Israel and Iran triggered market concerns about the disruption of Iranian oil supplies, driving oil prices to rise consecutively.Technical Analysis: Crude oil at the H4 level has experienced a minor rebound, but it is still operating below the 48-day bull-bear line. Additionally, the MACD lines and volume bars are contracting below the zero axis. According to the latest reports, Israel has agreed not to target Iran's oil facilities, a piece of news that quickly eased market concerns about the Middle East situation, leading to a significant drop in oil prices over a short period.

Resistance and Support Levels:

First Resistance Level: 73.00

First Support Level: 68.00

Second Resistance Level: 75.00

Second Support Level: 66.00