What matters in U.S. and global markets today |
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U.S. markets stumbled on Wednesday after the Federal Reserve delivered its expected first interest rate cut of the year, but stock futures roared back ahead of Thursday's bell as further cautious easing was signaled by the central bank.
The dollar and Treasuries flipped back and forth on the decision, with the greenback plunging to a multi-year low before rebounding sharply as Fed Chair Jerome Powell stressed a risk-management approach to further cuts. Even though the median of Fed policymaker projections is now two more cuts this year and another next, the split of views showed a third of them wanted no more easing in 2025 and almost half just expect one more cut or none. Powell's comments highlighted that divergence and suggested the last two meetings of the year would be close calls.
Still-hesitant Fed futures are now pricing in an 85% chance of another 25-basis-point move in October and just 44 basis points in easing over the remainder of the year. |
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The Nasdaq fell 0.32% and the S&P 500 slipped 0.1% on Wednesday after the Fed, partly dragged by Nvidia's 3% retreat on reports that China's regulators told domestic tech firms to halt purchases of all Nvidia's AI chips. However, Chinese officials said on Thursday they were willing to engage in dialogue over the issue; President Donald Trump and China's President Xi Jinping due to speak on Friday. Meantime, Oracle rose on hopes for its involvement in a TikTok workout deal and Lyft surged on Waymo partnership news. And market confidence that Fed rates will get below 3% next year from a midpoint of 4.125% now has helped index futures jump back about 1% today, while tech stocks remain in the vanguard worldwide.
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A busy week for central bank meetings also saw the Bank of Canada cut its main policy rate by a quarter point as expected and markets now await the Bank of England's decision later on Thursday. With inflation still high, the BoE is widely expected to leave rates on hold but there's a focus on its annual target for reducing its balance sheet of bonds - controversial in that it has involved direct gilt sales, unlike other G7 peers, and long-term UK gilts have suffered. British gilts, sterling and stocks were firm going into the decision, with the market consensus for a slowdown in the planned pace of so-called quantitative tightening, but retaining some active gilt sales. Norway's central bank also cut its main rate by 25bps to 4% on Thursday.
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Friday sees the Bank of Japan decide, with the yen and Japanese government bond yields softer running into that and the Nikkei stock index up 1%. The BOJ is expected to hold rates on Friday but hint of a hike later this year. However, political uncertainty adds complexity, with leadership changes in focus as the ruling party prepares for an October vote on a new Prime Minister. Elsewhere, China's stocks underperformed despite ongoing excitement in its tech sector, with a slide in real estate stocks acting as the big drag.
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In today's column, I discuss why the may be more trouble than they're worth.
I’d love to hear from you, so please reach out to me at mike.dolan@thomsonreuters.com. |
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The Federal Reserve, concerned about the risk of rising unemployment, reduced interest rates on Wednesday for the first time since December and indicated more cuts would follow to halt any slide in a labor market already experiencing higher joblessness among Blacks, a declining workweek, and other signs of weakness.
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Walt Disney-owned ABC (DIS.N) said on Wednesday it was pulling "Jimmy Kimmel Live" off the air, after comments by the late-night show's host about the assassination of conservative activist Charlie Kirk prompted a threat by the head of the top U.S. communications regulator against Disney.
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U.S. President Donald Trump meets British Prime Minister Keir Starmer on Thursday for talks designed to focus the U.S. leader's unprecedented second state visit firmly on global affairs rather than domestic political problems.
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The Fed is set to embark on an interest rate-cutting cycle just as many of its peers are winding theirs down, a phenomenon we haven’t seen in a long time. The rest of the world, therefore, may need to be prepared for some choppy waters ahead, writes ROI markets columnist Jamie McGeever.
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Growing blind spots in the oil market driven by geopolitics are making it harder to determine the true supply-demand balance in the world’s largest and most important commodity market. That’s a recipe for volatility, writes ROI energy columnist Ron Bousso.
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BoE gilt sales more hassle than they're worth |
Britain's own peculiar dance with central bank independence centers on whether the Bank of England should stop aggravating government debt servicing costs by halting its active sale of gilts. While the optics may be tricky, ongoing bond sales seem hard to justify.
The BoE's meeting on Thursday will, uncontroversially, keep interest rates on hold. In fact, financial markets don't see it easing again for the rest of the year as it bears down on a 3.8% inflation rate that's the highest in the G7.
But the real headache in the economy right now is rooted in fiscal policy and tight budget rules that leave the government some 20 billion pounds ($27.25 billion) short of its targets, raising concern about more tax rises and spending cuts in November's annual review.
Adding to the migraine are rising long-term borrowing costs, with 30-year gilt yields this year hitting their highest since the 1990s. |
Graphics are produced by Reuters. |
Many analysts insist the BoE's three-year plan to trim its balance sheet, so-called quantitative tightening (QT), is making the problem worse. And that's because - unlike its peers - the BoE is actively selling gilts, not just allowing them to mature and roll off.
Last month, the Bank's monetary policy report estimated that three years of QT - which has lopped off more than 300 billion pounds ($1.2 trillion) of gilt holdings - had only added 0.15-0.25 percentage points to UK government borrowing costs.
The report argues that the outsized recent rise in 30-year yields has instead been driven by global ructions in long-dated debt. |
Not everyone is convinced of that, however, and the Reuters consensus forecast is for the Bank to announce a reduction in the pace of annual balance sheet reduction to 67 billion pounds, well below the 100 billion pounds seen in each of the two previous years. |
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