Fed's Major Announcement at Dawn
On the early morning of October 24th Beijing time, the Federal Reserve released the National Economic Conditions Survey Report (also known as the "Beige Book"). The report indicated that from September to early October, there was little change in U.S. economic activity, with a slight increase in the number of businesses hiring. The "Beige Book" affirmed the Federal Reserve's success in combating inflation, stating that inflationary pressures in the United States continued to ease. Analysts believe that despite the latest economic data showing some recovery, Federal Reserve officials cited some contacts' bottom-up surveys of economic conditions as a reason to continue lowering interest rates.
Despite the "dove" signals released by the Federal Reserve's "Beige Book," which somewhat narrowed the losses for the three major U.S. stock indices at the end of the day, it still failed to rescue the downtrend in the U.S. stock market. By the close, the Dow Jones Industrial Average fell by 0.96%, the S&P 500 Index fell by 0.92%, and the Nasdaq Composite Index plunged by 1.6%, with the maximum intraday drop reaching 2.3%, and large-cap technology stocks fell across the board. Most popular Chinese concept stocks also fell, with the NASDAQ Golden Dragon China Index down by 1.2%, and the FTSE A50 futures index closed down by 0.68% in the continuous night session.
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According to the CME "FedWatch," the probability of the Federal Reserve lowering rates by 25 basis points by November is 93%, and the probability of maintaining the current interest rate is 7%; by December, the probability of maintaining the current interest rate is 2.1%, the cumulative probability of lowering rates by 25 basis points is 32.6%, the cumulative probability of lowering rates by 50 basis points is 65.4%, and the cumulative probability of lowering rates by 75 basis points is 0%.
The latest release from the Federal Reserve:
On the early morning of October 24th Beijing time, the Federal Reserve released the National Economic Conditions Survey Report (also known as the "Beige Book").
The latest "Beige Book" shows that since early September, there has been little change in economic activity in most regions of the United States, with two Federal Reserve districts reporting moderate growth. Reports on consumer spending were mixed, with some districts pointing out changes in the structure of consumer purchases, mainly shifting towards cheaper alternatives.
The Federal Reserve's "Beige Book" compiles the results of the bottom-up survey of the U.S. economic situation by the 12 regional Federal Reserves, and the report is an important reference for the Federal Reserve's monetary policy meetings. The latest issue of the Federal Reserve's Beige Book surveyed the U.S. economic conditions from September to October 11th.
Regarding the Federal Reserve's two major missions of employment and inflation, the "Beige Book" shows that inflation levels continue to remain moderate, with prices in most regions showing similar "slight or moderate" growth. The prices of some food items (such as eggs and dairy products) have risen more significantly. Home prices have risen slightly in many regions, while rents have remained stable or have slightly decreased.
The "Beige Book" states that many regions have pointed out the increasing sensitivity of consumers to prices. Input prices have generally risen moderately. Contacts in several industries have noted greater pressure from rising insurance and healthcare costs. Multiple regions reported that input prices generally rose faster than sales prices, compressing corporate profit margins.
Regarding the labor market, the "Beige Book" shows that overall, there was a slight increase in employment during this reporting period, with more than half of the regions reporting a slight or moderate increase in employment, and the remaining regions reporting little or no change in employment. Wages continued to rise at a moderate to moderate pace overall.In the Federal Reserve Bank of Atlanta's district, which includes areas most severely impacted by Hurricane Helen, reports indicate that the storm led to a decline in tourism and caused "significant losses and destruction" for farmers in parts of southern Georgia and Florida.
It is worth noting that the Beige Book mentioned the uncertainty surrounding the November U.S. elections approximately 15 times, considering the elections as one of the factors leading to consumers and businesses postponing investment, hiring, and procurement decisions.
Analysis suggests that the Beige Book report indicates that despite the unexpected rise in official employment, consumer prices, and retail sales data in September, the U.S. economy continues to slow down. Despite the recent improvement in economic data, Federal Reserve officials have recently cited anecdotes about the economic conditions of some contacts as a reason to continue lowering interest rates.
The current target range for the federal funds rate is 4.75% to 5.00%, and the market now widely expects that the Federal Reserve will cut interest rates by 25 basis points at the November rate meeting and another 25 basis points in December.
Across-the-board decline
Overall, the Federal Reserve's Beige Book has released a "dovish" signal: the U.S. economy has not changed much, the number of employees hired by companies has increased, and the level of inflation continues to be moderate, which has somewhat narrowed the losses of the three major U.S. stock indexes at the end of the day.
As of the close, the Dow Jones Industrial Average fell by 0.96%, the S&P 500 Index fell by 0.92%, and the Nasdaq Composite Index plummeted by 1.6%, with the maximum intraday drop reaching 2.3%.
Large technology stocks fell across the board, with Apple down 2.16%, Microsoft down 0.68%, Nvidia down 2.81%, Google down 1.43%, Amazon down 2.63%, Meta down 3.15%, and Tesla down 1.98%.
Analysts say that the rise in U.S. Treasury yields continues to put pressure on the market, with the 10-year U.S. Treasury yield once breaking through 4.25% during the session, reaching the highest level since July 26.Northwestern Mutual's Chief Investment Officer, Brent Schutte, believes that this is all due to the impact of high interest rates. The market is repricing the possibility of significant interest rate cuts by the Federal Reserve. Some areas of the economy have not yet felt the effects of rate hikes, but the longer interest rates remain high, the more these sectors will need to adjust to this reality, and the economy has become unbalanced.
The earnings season is also one of the main threads of current U.S. stock market trading. After the U.S. stock market closed, Tesla's earnings report greatly exceeded expectations. The financial data released for the third quarter of 2024 showed that the third-quarter revenue was $25.182 billion, a year-over-year increase of more than 7.8%, slightly below analysts' estimates of $25.43 billion; the third-quarter non-GAAP diluted earnings per share (EPS) were $0.72, a year-over-year increase of nearly 9.1%, significantly exceeding analysts' estimates of $0.6; the third-quarter gross margin was 19.8%, also significantly exceeding analysts' expectations of 16.8%.
Tesla's earnings report stated that despite a decline in the production of energy storage battery packs Megapack, the gross margin for the energy storage business in the third quarter reached 30.5%, setting a record high for the business's single-quarter gross margin, with a sequential increase of 596 basis points. The Shanghai factory is expected to begin delivering Megapacks in the first quarter of next year.
In terms of automotive business, Tesla reiterated its plan to start producing new models such as ultra-low-cost vehicles in the first half of next year. Tesla CEO Musk said in the performance conference call that the price of the affordable electric vehicle will be below $30,000, but did not confirm that the rumored low-cost vehicle Model 2's price is $25,000.
Driven by the positive earnings report, Tesla's stock price once surged by more than 12% after the market closed.