Fed faces a big dilemma

06th September 2024 – 13th September 2024 | Another week in the markets

S&P 500	Nasdaq	VIX	DJIA	Russell 1000	NYSE
5,626.02	17,683.98	16.56	41,393.78	3,068.95	19,121.50
4.02%	5.95%	-26.01%	2.60%	4.03%	2.46%
Nifty 50	Gold	Silver	Brent crude	USD-INR	EUR-INR
25,356.50	$2,606.20	$31.06	$72.18	83.99	92.91
2.03%	3.14%	9.89%	0.99%	-0.12%	-0.23%

Source: MarketWatch 

Hello Saturday,

This week, With the FOMC meeting coming up on September 17-18, will the Fed opt for 25 bps cut or a 50 bps cut, Boeing Union goes on strike and housing finance stocks soar ahead of Bajaj Finance’s listing.

• Fed faces a big dilemma: Will it prioritise the 50 bps rate cut over a 25 bps rate cut? 
• Boeing Union goes on strike bringing 737 production to a halt. The strike comes on the heels of a labour deal between union leaders and management.
• Microsoft buys a ₹453 crore land deal in Pune
• Housing finance stocks begin an upward climb as Bajaj Housing prepares for a market debut

Taking stock | To go big or not? | Boeing bugaboo | Microsoft spreads its roots deeper | Reaching for the sky | Invest wisely | Another week in the markets

Taking stock

Wall Street’s main indices surged on Friday over hopes of a larger-than-anticipated rate cut by the Federal Reserve. The Dow Jones rose 297.01 points or 0.72%, the S&P 500 rose by 0.54% and the Nasdaq gained 114.30 points or 0.65% on Friday.

To go big or not?

The Federal Reserve faces a vexing dilemma: to go in for a largely expected 25 bps rate cut or give an uncommon kick-off to the rate cut spree with 50 bps slash? The chances of the latter happening have not been rated very highly by market participants but, the prospect of a larger cut has not been completely discounted.

According to the CME group, stronger housing costs in the Consumer Price Index data released nudged the market to peg the chances of a smaller, that is, 25 bps rate cut at a high 85%. However, experts have also indicated that the labour market has softened more than anticipated, and this will be the key that will unlock the 50 bps rate cut for the Fed.

However, with a 50 bps rate cut, the US central bank risks signalling that economic conditions are worse off than captured by economic indicators. Alternatively, a 50 bps rate cut could also spark a market rally, which will, in turn, make the Fed’s path to securing a 2% inflation rate all the more challenging.

Historically, the Fed prefers to move forward with rate cuts in smaller increments as this gives it more leeway in studying the economic repercussions of its policy decisions. Despite its preference, the Fed has pressed ahead with larger rate cuts as at the start of 2001 and 2007, when markets reflected greater alarm over the economic outlook.

Another hurdle blocking the pathway to a 50 bps rate cut is the Fed’s inclination towards building a broad-based consensus and the follow-on questions that will arise with a large cut in an election year. A 0.25% rate cut, consequentially, becomes the path of least resistance, while also granting to the Fed the luxury of ramping up the rate cut pace, if the economic situation so merits.

Economists have indicated that starting with a 25 bps rate cut will make it difficult for the Fed to reach the 100 bps cut projected for this year. It will also raise awkward questions over why the central bank didn’t lead with a larger rate cut.

Anyhow, the US labour market seems to be in the doldrums, and the August jobs report was less than reassuring in calming market fears. The unemployment rate ticked down marginally from a three-year high of 4.3% to 4.2%, and the unreliability of previous data sets has many in the markets convinced that unemployment is far worse than captured by the data.

Boeing bugaboo!

For Boeing, it is a case of when it rains, it pours.

A union strike couldn’t have come at a worse time for Boeing, which is bleeding cash and piling up debt, in the aftermath of an Alaskan Airlines accident in which a door plug blew right off a 737 MAX jetliner. 

As the strike brings production activity to a halt, the industry’s supply chains will be strained further, and jet shortages will hamstring the operations of airlines across the globe. 

The declaration of the strike came after the workers rejected a labour deal reached between the union leaders and management promising a 25% hike in four years. The 33,000-strong International Association of Machinists and Aerospace Workers rejected the deal with a 94% majority. 96% of them also voted in favour of going on a strike. 

One employee told The Wall Street Journal that the proposed starting wage under the rejected deal was $21 an hour, which is similar to a local burger chain in Seattle. “You can make more money flipping burgers,” the employee told WSJ.

Till very recently, the Boeing union’s members had never rejected a contract brought to the table by its leaders. The last time tensions flared between the union adn the management was back in 2008. A labour deal was struck then, after a 57-day halt in production that cost Boeing $100 million a day.

Microsoft spreads its roots deeper!

Microsoft spread its roots deeper in IT hub Pune by acquiring land parcels worth over ₹973 crore in the last two months.

On September 5, Microsoft completed the registration process for a land parcel worth ₹453 crore spread over 16.4 acres. The software major paid a transaction fee of Rs 27.18 crore for the same.

A day later, on September 6, the Indian arm of the US-based Microsoft completed the registration of the transaction for a land parcel of over 13.6 acres amounting to ₹520 crore.

The software giant has been ramping up its investments in India, with commercial real estate in mind, and a special focus on data centers and development hubs.

The company has also inked a pact with the Telangana government to develop a large data centre in Hyderabad. Over the next 15 years, Microsoft will be funnelling in over ₹15,000 crore to the new data centre in Hyderabad.

Source: Google Finance 

Reaching for the sky!

Bajaj Housing Finance is working its charm on the markets even before its debut.

In the run-up to its launch, housing finance companies soared by as much as 15%. Leading the group, whose stock price witnessed a positive trend is GIC Housing Finance. On Friday, GIC’s share price rose by 15% to ₹261.80. Home First Finance followed in closely rising by 13% to ₹1,273.95. Edelweiss Financial Services and Repco Home Finance soared by as much as 10% to ₹125 and ₹597.70 respectively. 

Bajaj Housing Finance is all set to receive a thunderous welcome on the bourses given its vintage Bajaj legacy. The IPO of the housing finance company witnessed record subscriptions of over ₹3.5 trillion for a ₹6,560 crore share offering. The IPO also surpassed the record set by Tata Technologies, in terms of total investor applicants. While Tata Technologies received 7.35 million applications, Bajaj Housing Finance has bagged over 9 million applications.

Overall demand exceeded 67 times the shares on offer. The institutional investors portion of the IPO was oversubscribed by an incredible 222 times, whereas high net worth individual portions of upto and over ₹10 lakh saw over-subscriptions of 51 and 31 times respectively. 

According to CRISIL Market Intelligence & Analytics (MI&A) estimates, net interest margins for HFCs stood at 3.2 per cent in FY24, which is expected to reach 3.3% in fiscal 2025 due to expectation of decline in repo rates in the first quarter of fiscal 2025.

Invest wisely 

Investing demands that one should always keep an eye on all the developments occurring in the financial and economic landscape. Alas, most investors do not have the time or the inclination to keep up with the nitty-gritty of the business world. This is where the Appreciate app can be of great help to diligent investors. With our deep research capabilities and macroeconomic indicators, you will always be well-informed about macroeconomic and financial events that can have a repercussion on your portfolio. With Appreciate by your side, staying on top of the market cycle is a walk in the park.

Warm regards,
Another week
in the markets