In the last few months, the European Central Bank and Bank of Canada both cut interest rates. The U.S. did not do so. Normally, this strengthens the U.S. dollar (UUP). This time, the market’s reaction differed.
The U.S. dollar weakened against the major currencies, including the Yen.
In the last week, the BLS reported weaker job growth and U.S. inflation trending lower. In August, the sticky inflation lifted the CPI figure. Housing and service costs are persistent pricing pressures. The Federal Reserve is in no position to cut rates by more than 25 bps.
Treasury bond yields fell again in reaction to both reports. The yield is at or near 52-week lows all across the board, from the 1-month treasury to the 30-year one. Debt investors may buy the 20+ Year Treasury ETF (TLT). This fund rises as interest rates fall.
The probability is very high that the Fed will limit its rate cut by a one-quarter percentage point. Food prices still rose by 0.1% last month, after rising by 0.2% in each of the two past months (June and July). Supermarkets are attractive investments. Consider Costco Wholesale (COST) and Walmart (WMT). They may cross-sell higher-margin goods as customers visit the stores to buy groceries.
Gas prices fell by 0.6% while the cost of energy products fell by 0.8%. Shell (SHEL) and Exxon Mobil (XOM) are two attractive energy stocks to consider.
The 25 bps cut would lower the overnight interest rate in the range of 5.00% to 5.25%.
