[THE ENDGAME] : See You in September...

...when the summer's through. Now that the Fed chairman has all but said it’s time to change course and start to lower interest rates during his speech at Jackson Hole on Friday, and the dust has settled, it was a rather benign day in the financial markets today, all except the Nasdaq that is, as lower interest rates and the upcoming earnings results from Nvidia on Wednesday.

Not that there was ever any doubt in anyone’s mind that the Fed was headed down the rate cutting path but hearing it from the horse’s mouth solidified the inevitable. Powell laid the groundwork for rate cuts going forward, though, as usual, he declined to provide exact indications on timing or extent. Hint, hint. Wink, wink. Nudge, nudge. ‘Nuff said, next month, if one is to believe the minutes from the last FOMC meeting where most participants said it would likely be appropriate to lower the key interest rate at next month’s meeting if data continues to come in as expected.

Traders in the Fed Funds futures market are 100% certain that the first rate cut will come next month with 30.5% clinging to the hope of a cut of 50bp, though Powell made no mention of when he thinks policy easing will begin, or by how much. But there are still sceptics out there. "Stronger-than-expected economic news is likely in coming weeks, in our opinion. If so, that might dampen rate-cut expectations,” wrote Ed Yardeni of Yardeni Research. “Powell’s speech was unambiguously dovish. It was also unambiguously bullish for the market because it confirmed widespread expectations that a September cut in the bag and will be followed by several more cuts. However, the market may have already discounted most of these expectations,” he added.

Regardless, the Dow gained just enough (65 points) to close at a new all-time high, while the S&P500 (-0.31%) showed a marginal decline, 1% from its own all-time high closing level. However, as previously mentioned, the Nasdaq (-0.85%) suffered as traders appeared to be lightening up on their tech positions ahead of Nvidia’s earnings, which is being looked upon as the key to the continued bull market in AI and all things related. Including the short end, where the 2yr note yield edged 1bp higher to close at 3.91%, Treasuries were virtually unchanged to a tad higher, with the 10yr note closing at 3.82% and the long bond closing at 4.11%.

As expected, though probably slower than expected, high grade corporate issuance was kept to a bare minimum today with only one deal, Associated Banc-Corp’s $300m 6nc5 fixed-to-floating rate note deal, crossing the finish line. The deal was never officially announced but made the tape as a $300m no grow launch. Sounds like a reverse inquiry to me.

Coming into this week, the Street was divided as to just how much issuance we might see as the summer comes to a close with the long Labor Day weekend. There were those that thought market conditions would prompt issuers to accelerate their plans to tap the market this week and avoid the post-Labor Day rush we see every year. Over the past five years, the week after Labor Day has produced, on average, $60.836bln in ex-SSA issuance, while September has averaged $139.892bln.

There were some who thought we wouldn’t see anymore than $5bln come to market this week, while some wildly optimistic respondents to our weekly issuance poll thought as much as $20bln could be priced. To put things in perspective, the last week of August 2023 produced one ex-SSA offering totaling $1bln, while in 2022, three issuers combined to raise $3.7bln.

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