Yesterday, the three major US stock indices closed near equilibrium, though the Dow Jones and S&P 500 hit new record highs during the session. This underscores that US equities remain at lofty levels, just hours before a pivotal announcement that could shape future market performance. To recap, US interest rates climbed from a range of 0-0.25% in March 2022 to 5.25-5.50% by July 2023, where they have stayed. This aggressive tightening aimed to combat soaring inflation and curb the excesses of an economy flush with cheap money. Recently, inflation has moderated, and signs of economic weakness have emerged, prompting the Fed to consider lowering rates to stimulate recovery.

The key question isn't whether the Fed will cut rates, but by how much. Traditionally, central banks favor quarter-point adjustments. However, some argue for a more aggressive half-point cut, suggesting the Fed is behind the curve and the economy is weakening rapidly. Others contend that the economy remains relatively strong, advocating for a modest quarter-point cut, possibly with a commitment to further reductions.

Futures markets currently favor a half-point cut, with odds around 60%, slightly down from yesterday due to mixed economic data. The real intrigue lies in how markets will react. Here are four possible scenarios:

  • A 25 basis point cut makes markets happy, signaling the Fed's control and confidence in the economy.
  • A 25 basis point cut disappoints markets, seen as too conservative and potentially harmful to economic health.
  • A 50 basis point cut pleases markets, showing the Fed's proactive stance to prevent a hard landing.
  • A 50 basis point cut worries markets, indicating the Fed's fear of economic deterioration.

These scenarios reflect the diverse opinions of analysts and economists. However, tonight's rate decision is just one piece of the puzzle. Jerome Powell's commentary and the Fed's forward-looking statements, including the dot plot of rate expectations, will also be crucial.

In Europe, stock markets mostly rose yesterday, except for the defense sector, which was hit by reports of some Ukraine allies seeking peace with Russia. Meanwhile, in the Asia-Pacific region, Japan ended in the green, so did China after holidays, and Taiwan's semiconductor sector dragged TAIEX down by 0.9%. Hong Kong is on vacation today, as is South Korea. India and Australia are stable. Europe indices are mostly in the red, with the the Stoxx EU 600 down 0.4% . Futures on Wall Street are just above zero.

Today's economic highlights:

August inflation in the UK and Eurozone, as well as US building permits and housing starts, DOE crude inventories, and finally, the FOMC rate decision. The full agenda is here. 

The dollar is worth to EUR 0.8989 and GBP 0.7570. The ounce of gold remains firm at USD 2,578. Oil is steady, with North Sea Brent at USD 73.15 a barrel and US light crude WTI at USD 69.48. The yield on 10-year US debt is at 3.68%. Bitcoin is trading just under USD 59,950.

In corporate news:

  • Alphabet - In an unexpected twist, the European Union's General Court tossed out the hefty 1.49 billion euro fine against Alphabet's star player, Google, shaking up the online search advertising game and scoring a point for the tech titan.
  • Qualcomm - The legal saga continued with Qualcomm playing defense as the European Court of First Instance upheld a penalty against the chipmaker for its below-cost sales antics. But, in a small victory, the fine's sting was lessened to a slightly more palatable 238.7 million euros, down from the original 242 million euro slap.
  • Blackrock and Microsoft - Blackrock and Microsoft are joining forces to conjure up an AI investment fund. This duo is set to erect data centers and energy projects to satiate the AI sector's voracious appetite, as per the Financial Times. Meanwhile, Blackrock's chessboard strategy in Spain sees them securing a 20% stake in gas supplier Naturgy, a play straight out of the investment fund GIP's January handbook.
  • Boeing - The aerospace giant and the International Association of Machinists and Aerospace Workers are sitting at the negotiation table once more, with federal mediators stepping in to hopefully choreograph an end to the strike that's been unfolding since Friday.
  • Southwest Airlines - The activist investor Investment Management has thrown down the gauntlet, declaring its intent to dethrone CEO Robert Jordan, as per a union memo seen by Reuters.
  • Tupperware Brands - It seems the party's over for Tupperware Brands as they file for Chapter 11, their iconic food-preserving containers no longer the belle of the ball amidst a backdrop of dwindling demand and towering financial woes.
  • Walt Disney - The plot thickens in the media empire as Disney's Indian outfit, Star India, slaps Zee Entertainment with a whopping 940 million dollar lawsuit in a London court, all over a cricket broadcast deal that went sour.
  • Amazon - The e-commerce juggernaut has crowned Samir Kumar as the new head of its Indian dominion, a battlefield marked by fierce competition and regulatory hurdles.
  • JPMorgan Chase - CEO Jamie Dimon is packing for an African adventure, eyeing a mid-October safari into the business wilds of the continent, as per sources spilling the beans to Reuters. It's a return to the land of opportunity, seven years in the making.
  • General Mills - Defying the odds, General Mills served up a quarter that wasn't as half-baked as feared, with sales only slightly crumbled to 4.85 billion dollars, thanks to the appeal of their snacks and pet food lines.
  • Arko - The convenience store chain is looking to check out of its retail space, tagging its stores with a two billion dollar price tag in a bid to exit stage left from the slow-moving convenience sector drama.
  • Intuitive Machines - Blasting off with a NASA contract that could be worth up to 4.82 billion dollars, Intuitive Machines is now soaring 42% in pre-market trading.

Analyst recommendations:

  • Blackstone Inc.: HSBC maintains its hold recommendation with a price target raised from 126 to USD 149.
  • Edwards Lifesciences Corporation: Baptista Research upgrades to outperform from hold with a price target raised from USD 77.90 to USD 82.90.
  • Extra Space Storage Inc.: Jefferies upgrades to buy from hold with a target price raised from USD 162 to USD 204.
  • Resmed, Inc.: Wolfe Research downgrades to underperform from peerperform with a target price of USD 180.
  • Reddit, Inc.: Baptista Research initiates an Outperform recommendation with a target price of USD 69.30.
  • Marriott International, Inc.: Goldman Sachs initiates a Buy recommendation with a target price of USD 267.
  • V.f. Corporation: Barclays upgrades to overweight from equalweight with a price target raised from USD 19 to USD 22.
  • Cintas Corporation: Truist Securities maintains its buy recommendation and reduces the target price from USD 850 to USD 225.
  • Extra Space Storage Inc.: Jefferies upgrades to buy from hold with a target price raised from USD 162 to USD 204.
  • Five9, Inc.: Piper Sandler & Co maintains its overweight recommendation and reduces the target price from 47 to USD 35.
  • Omega Healthcare Investors, Inc.: Deutsche Bank maintains its buy recommendation and raises the target price from USD 38 to USD 46.
  • On Holding Ag: Stifel maintains its buy recommendation and raises the target price from USD 45 to USD 59.
  • Centamin Plc: Panmure Liberum upgrades to buy from hold with a price target raised from GBX 117 to GBX 163.
  • Hiscox Ltd: Goldman Sachs downgrades to neutral from buy with a target price reduced from GBX 1375 to GBX 1265.
  • Intercontinental Hotels Group Plc: Goldman Sachs upgrades to buy from neutral with a price target raised from GBX 8250 to GBX 9350.
  • Spectris Plc: HSBC downgrades to hold from buy with a price target reduced from GBP 37 to GBP 30.50.
  • Whitbread Plc: Goldman Sachs downgrades to neutral from buy with a target price reduced from GBX 4100 to GBX 3500.