1. Fed Jumping the Gun on Cuts, Says One Model
The Federal Open Market Committee meets Sept. 17-18 and the market is pricing in more than a 90% chance of another quarter-point rate cut.
But the Fed has started easing extremely early, according to one guideline of monetary policy, J.P. Morgan noted this week.
The Taylor Rule, a forecasting model introduced by Stanford economist John Taylor, is designed to inform central banks about where rates should be given factors like inflation and employment and by looking at real and nominal rates.
Currently “Fed rates remain substantially below what the Taylor rule implies,” J.P. Morgan said in note.
The Taylor rule implied fed funds rate is north of 4%, while the current rate is at the 2% to 2.25% range.
In addition, real policy rates are nowhere near where they usually are before a recession starts.
“Real policy rates are near zero,” J.P. Morgan said. “In the last eight cycles, real rates were at least at 1.8%, or higher, in the 6-month run-up to the downturn.”
“Into the last three recessions, the Fed started cutting from a level higher than the Taylor rule implied rate,” analysts added. “This is not the case currently, where Fed funds rate will likely go lower even though it is less than half of what the Taylor rule implies.”
2. Gold’s Plunge Signaling More Weakness?
Gold prices took a beating on Thursday as the high-flying safe haven suddenly looked less attractive with the prospect of U.S.-China trade talks in October.
Spot gold had its biggest percentage loss of 2019, while futures fell the most since January.
And the size of the plunge means there will be pressure on gold prices for a few weeks, according to SentimenTrader.
The price of gold had a -3 standard deviation move Thursday after hitting a 52-week high the day before.
“Of the 11 other times late buyers got slapped like this, they showed further losses a month later 8 times,” SentimenTrader tweeted.
3. Apple Readies Launch of New iPhones Next Week, But Revival Unlikely
Apple (NASDAQ:AAPL) is gearing up to unveil its latest slate of iPhones next week, but a meaningful return in demand will likely only arrive next year, when the tech giant rolls out 5G-equipped smartphones.
iPhone demand revival will likely be seen next year, Piper Jaffray said, anticipating "limited excitement" around this year's iPhones. The investment firm said 23% of iPhone owners are interested in buying the 5G version of Apple's phone, which is expected to launch next year, up from the 18% interest from a previous internal survey.
Apple’s iPhone replacement cycle – the period during which users purchase newer models of iPhones to replace existing ones – has come under scrutiny after the company's previous launch of iPhones last year failed to spark a wave of upgrades from existing consumers.
Underscoring the recent malaise in demand, Apple saw its first-ever decline in iPhone shipments last year and ceded its No. 2 position in terms of smartphone market share to Huawei.
But the tech giant has a plan to wrestle control back from its rivals: The launch of a lower-cost iPhone due next spring.
The new model would be Apple's first low-cost smartphone since the launch of the iPhone SE in 2016.
Still, the launch of 5G-equipped iPhones is what many are waiting for. But Nomura said expectations are running too high.
"We believe many investors are looking ahead to the 2020 5G iPhone launches," Nomura said. "iPhone estimates may be optimistic and that the shape of the 5G cycle remains uncertain."