5 things to start your day: Europe

Good morning. Finally we get to see what the Fed decides. Investors also await UK inflation data. Oil declines despite Middle East tensions.

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Good morning. Finally we get to see what the Fed decides. Investors also await UK inflation data. Oil declines despite Middle East tensions. BlackRock and Microsoft are teaming up for AI investments. Here's what people are talking about.

Decision day

The Federal Reserve is set to lower interest rates on Wednesday, but by how much remains an open question. Forecasters largely anticipate a quarter-point cut, though economists at JPMorgan expect a bigger, half-point move. Traders remain almost evenly split, shading slightly toward a bigger reduction. Bridgewater Associates founder Ray Dalio said the overall picture of the US economy probably warrants a smaller shift, while DoubleLine Capital's Jeffrey Gundlach joined the growing ranks of those wagering the Fed will kick off its rate-cutting cycle by going large. As the debate goes on, traders who are locked into record wagers tied to the Fed's expected easing Wednesday are risking sharp losses if officials opt for a standard-sized cut.  And JPMorgan CEO Jamie Dimon says, whether a 25 or 50 basis-point cut, the move is "not going to be earth-shattering." — Listen here. And read (below) Garfield's analysis focused on gold.

BOE next

With central banks in the limelight this week, the Bank of England is set to announce its policy decision a day after the Fed. And data wise, investors get UK inflation figures today — a day before the BOE meeting where policymakers are expected to keep interest rates on hold. Bloomberg Economics expects headline CPI nudged up a touch in August, reinforcing the BOE's cautious approach to easing. The British pound is little changed today, and up by more than 4% this quarter against the US dollar. Also today we get the final euro-area CPI reading which will offer more clues to gauge the broader outlook for the European Central Bank's policy path.

Oil declines

Tensions are rising again around the Middle East. That didn't stop oil prices edging lower today as traders navigate drivers including indications of higher US stockpiles and the interest-rate trajectory coming from the Federal Reserve. Brent futures slid toward $73 a barrel after rising almost 3% over the previous two days. Hezbollah accused Israel of orchestrating an attack involving pagers in Lebanon that left a number of people dead and wounded thousands. The incident raised fears of an all-out war in the region, buoying oil prices on Tuesday. The commodity remains markedly lower year-to-date, with China's grim demand outlook and plans for OPEC+ to eventually bring back shuttered supply weighing on prices.

AI investments

BlackRock and Microsoft are teaming up on one of the largest efforts to date to bankroll the build-out of data warehouses and energy infrastructure behind the boom in artificial intelligence. Along with the UAE's MGX investment vehicle, the companies will seek $30 billion of private equity capital over time for the strategy, which will then leverage the money to as much as $100 billion in potential investments. The infrastructure investments will be mostly in the US, with a portion of the funds to be deployed in US partner countries.

Cohen stops trading

Steve Cohen has stepped away from the trading floor. While the billionaire hedge fund founder remains Point72 Asset Management's co-chief investment officer along with Harry Schwefel, he's no longer investing clients' capital. Cohen, 68, is instead focused on driving the firm's growth and mentoring and developing talent, the firm said in an emailed statement. Cohen has been one of the dominant forces in the industry for more than three decades and rebuilt his hedge fund into one of the world's biggest after a costly insider-trading scandal. And read here for more on the latest around the world of hedge funds.

Coming up

Other than the Fed decision, plus UK and euro-zone inflation figures, the data calendar includes South African retail sales and CPI. Later we also get US housing starts. ECB Governing Council members Boris Vujcic, Robert Holzmann and Madis Muller speak.

What we've been reading

This is what's caught our eye over the past 24 hours. German finance ministry plans to keep selling Commerzbank shares Salesforce to charge $2 per conversation in new AI strategy Trump pledges to restore SALT write-off, tax break he curbed Two Australian pensions plan merger to create $41 billion fund Chinese chip stocks jump after claims of equipment breakthrough Swaps prices show that bruised traders doubt BOJ's rates signals  US officials head to China for talks amid overcapacity concerns

And finally, here's what Garfield is interested in this morning:

Gold's impressive gains this year have had a number of drivers but its recent strength owes much to concerns the US is heading for a recession. That makes the precious metal a vital lodestone for investors after the Federal Reserve delivers its decision on Wednesday, as they seek guidance on whether the soft economic landing Chairman Jerome Powell has target remains achievable. Bullion's surge in the first half of 2024 owed less to US economic concerns, coming as it did at a time when traders were frantically winding back bets on Fed rate cuts. Instead, demand came from central banks seeking to diversify their reserves, along with strong retail interest out of China amid a property market downturn. Simmering geopolitical concerns also helped. While all of those drivers retain some strength, recent advances are being accompanied by a revival in ETF holdings backed by bullion that coincides with the Fed's definitive pivot toward rate cuts. That shows investors becoming anxious that the landing for the US economy will be a hard one. Gold normally outperforms equities into and during recessions. And it has also showed a tendency this century to rise in the lead-up to presidential elections, so it's no real surprise to see it showing such strength this year. There's some scope for gold to climb even before the Fed decision if Middle East tensions escalate after Hezbollah blamed Israel for an attack that killed a number of people and left almost 3,000 wounded across Lebanon. But the time to keep a closer eye on the yellow metal will come when the FOMC reveals its immediate decision and its summary of economic projections. Those guidelines will have the potential to ramp up or cool down recession fears -- seeing gold bust above $26,000 would be a clear sign that the economic angst levels are intensifying. As things stand bullion's 25% surge this year puts it on track for the sort of annual gains seen in 2007, 2020 and other periods when the economy was headed for a very hard landing indeed. Garfield Reynolds leads Bloomberg's Markets Live blog in Asia and is based in Sydney.

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