Fed kicks off easing cycle with a bang

The US Federal Reserve cut interest rates by half a percentage point, marking the start of its first easing cycle since the pandemic, according to a statement out yesterday. The Open Market Committee’s meeting voted 11 to 1 to reduce the federal funds rate to a range of 4.75% to 5%. Additional rate adjustments will be considered by policymakers based on “incoming data, the evolving outlook, and the balance of risks,” according to their statement.

Powell says nothing is set in stone: The Fed will respond flexibly to evolving economic conditions, chair Jay Powell said at a presser after the meeting, the Financial Times reports. Powell indicated that rates are not set on a “fixed path” and that the Fed may adjust its approach if inflation remains persistent. He also emphasized the central bank’s readiness to act if unexpected weaknesses in the labor market emerge.

What to expect: The Fed’s updated projections include a further 50 bps rate cut by year end, another 100 bps in 2025, and a final 50 bps in 2026, bringing the benchmark rate to 2.75%-3%, according to its median forecast (pdf). The Fed has two meetings left this year, in November and December, implying two 25 bps rate cuts in each of the meetings.

Is the Fed playing catch-up? The Fed’s 50 bps reduction contrasts with the Fed’s assessment that the US economy is in a good place, Egyptian-American economist Mohamed El Erian said in an X post. “Today’s 50 bps move is a catch-up for not having reduced rates in July.”

Market reax: The stock market responded positively, with the S&P 500, Dow, and Nasdaq Composite all posting gains before easing to close slightly down, the Wall Street Journal reports. Treasury yields also dipped after initially rising to 3.706%, settling at 3.685%.

MARKETS THIS MORNING-

Asia-Pacific markets are also reacting positively to the start of the era of monetary easing, with Japan’s Nikkei leading gains. Hong Kong’s monetary authority followed the Fed’s lead with a 50 bps rate cut, with Hang Seng futures pointing to a flat open after markets return to trade on Thursday following a day off yesterday. Wall Street futures are also up as traders continue to weigh the Fed’s moves yesterday.

THE CLOSING BELL: TADAWUL-

The TASI rose 0.3% yesterday on turnover of SAR 5.7 bn. The index is down 0.4% YTD.

In the green: Red Sea (+10.0%), Al Istithmar Reit (+8.0%) and Batic (+5.2%).

In the red: GIG (-2.6%), Tanmiah (-2.6%) and Walaa (-2.6%).

THE CLOSING BELL: NOMU-

The NomuC fell 0.1% yesterday on turnover of SAR 64.6 mn. The index is up 4.4% YTD.

In the green: Bena (+8.3%), Al Razi (+7.2%) and Saudi Top (+7.2%).

In the red: UFG (-30.0%), Edarat (-7.4%) and Dar Al Markabah (-5.3%)

CORPORATE ACTIONS-

#1- Savola Group raised SAR 943.5 mn from its rump share offering, which was 8.1x oversubscribed, it said in a disclosure to Tadawul. The 35.1 mn rump shares were offered at an average price of SAR 26.9 a piece. Savola’s SAR 6 bn rights issue wrapped up earlier this week and was 94.2% subscribed, with shares traded between SAR 26.6 and SAR 28.2.

#2- Bena Steel’s general assembly greenlit a 20% capital increase to SAR 60 mn by issuing 1 mn bonus shares at a rate of 1 new share for every 5 existing shares, as it looks to support growth and bolster its financial position, it said in a summary of results (pdf) from an EGA meeting. The company has set aside SAR 10 mn from retained earnings to finance the capital increase.

Business as usual: Due to the capital hike, the fluctuation limits for the company’s shares were set at SAR 36.95 yesterday, with outstanding orders canceled. The Securities Depository Center (Edaa) will deposit the additional shares into investors’ portfolios by 22 September, according to a Capital Market Authority statement by CMA.

AND- Bena Steel is also distributing SAR 4.5 mn in dividends at SAR 0.9 per share for 2023, with the distribution dates to be announced at a later time.

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#3- The Saudi Printing and Packaging Company reported accumulated losses worth SAR 218.2 mn — equivalent to 36.4% of its capital — as of August, it said in a disclosure to Tadawul. The losses stem from a drop in sales in both the printing and packaging segments, a SAR 30.5 mn impairment of assets, and rising financing costs. The company plans to expand its product range, consolidate packaging operations, restructure its printing sectors, and reduce bank loans to cut financing costs in order to stem the losses. Listed companies that face accumulated losses exceeding 20% of capital must disclose plans to turnaround their finance, as per market regulations.