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The US Federal Reserve looks set to follow the European Central Bank, and cut rates next week by perhaps a quarter of a percentage point. Fed Chairman Jerome Powell has made clear that he doesn’t think a US recession is likely, but he has acknowledged that economic headwinds are intensifying.
“There are all these risks, and we’re monitoring them very carefully and we’re conducting policy in a way that will address them,” he said earlier this month.
The comments helped bolster investor expectations that a rate cut will be announced following the central bank’s meeting on September 17 and 18. The Fed slashed interest rates for the first time in a decade in July as the cost of the US-China trade war mounted.
“The domestically focused, consumer-orientated parts of the economy are holding up, but with inflation looking non-threatening the Federal Reserve has scope to offer support to the economy,” wrote analysts at ING, a Dutch bank.
The Trump factor: US President Donald Trump has been using his Twitter feed to keep the pressure on the central bank. “The Federal Reserve should get our interest rates down to ZERO, or less, and we should then start to refinance our debt,” he tweeted last week.
Lest Trump’s own nominee to lead the Fed not get the message, the president used the ECB’s decision last week to push interest rates further into negative territory to drive his point home.
“They are trying, and succeeding, in depreciating the Euro against the VERY strong Dollar, hurting U.S. exports…. And the Fed sits, and sits, and sits. They get paid to borrow money, while we are paying interest!” he tweeted.
Over to you, Mr. Powell.
US stock records on tap?
Fed action could lead the S&P 500 and Dow to new all-time highs. Last week was stellar for stocks, with concessions by the United States and China raising hopes that trade negotiations could yield a breakthrough if they resume next month as expected.
China agreed last week to exempt shrimp, cancer drugs, pesticides and more than a dozen other products from tariffs. US President Donald Trump responded by delaying a planned tariff increase from October 1 until October 15 in what he called “a gesture of good will.” Then, on Friday, Beijing cleared the way for more purchases of US soybeans and pork.
The Dow added 1.6% last week for its third consecutive weekly gain. The S&P 500 rose nearly 1% and Nasdaq rose 0.5% last week, matching the Dow’s winning streak.
Apple’s next big test
The iPhone 11 and its more expensive Pro brothers go on sale in a large handful of countries Friday.
Apple (AAPL) could use a sales win: iPhone sales have fallen in three of the past four quarters, and with China’s economy in a prolonged slump, there’s little chance of a turnaround in the near future.
That’s why Apple is banking on its $5-a-month Apple TV+ and Arcade subscription services to help boost revenue.
But investors will still pay close attention to reports about how well Apple’s iPhone 11 sales performed during its opening weekend. The lower-than-expected $699 price could give those sales a boost.
Saudi oil capacity
Oil traders are on alert after coordinated strikes knocked out 5.7 million barrels a day of Saudi Arabia’s crude oil and gas production, about half the country’s total output.
Two Saudi Aramco sites including the world’s biggest petroleum processing facility were struck. State-owned Aramco “hopes to have that capacity restored within days,” a source told CNN Business. The outage will affect 5% of daily global oil output.
US Secretary of State Mike Pompeo pinned the strikes directly on Iran. Tehran has dismissed the claim.
“Oil prices will jump on this attack,” said Jason Bordoff, founding director, Center on Global Energy Policy at Columbia University. “The risk of tit-for-tat regional escalation that pushes oil prices even higher has gone up significantly.”
The International Energy Agency said it was in touch with Saudi authorities. “For now, markets are well supplied with ample commercial stocks,” it said.
Monday: China retail sales, industrial production
Tuesday: US industrial production for August; FedEx (FDX) earnings
Wednesday: Fed rate decision; General Mills (GIS) and Lloyd’s of London earnings
Thursday: BOE and BOJ rate decisions; US existing home sales
Friday: Apple’s iPhone 11 goes on sale in select countries
CNN Business’ Victoria Cavaliere contributed to this report