LONDON, Sept 18 (Reuters) – 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.
* 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.
In today’s column, I discuss why the Bank of England’s active gilt sales may be more trouble than they’re worth and halting them in favor of just allowing maturing bonds to roll off could go a long way to healing the country’s fragile bond market.
Today’s Market Minute
* 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.
* 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.
* 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.
* 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.
Chart of the day
Market betting on the Fed interest rate trajectory through the end of next year see rates tumbling below 3% in a year’s time, implying cuts of 125 basis points over that period, which is two more than Fed policymakers indicated on Wednesday. The implied ‘terminal rate’ for the cycle of 2.9% is some 35 basis points lower than it was just three months ago.
Today’s events to watch
* Bank of England policy decision (7:00 AM EDT)
* U.S. September Philadelphia Fed business survey (8:30 AM EDT) weekly jobless claims (8:30 AM EDT) July TIC data on Treasury holdings and flows (4:00 PM EDT)
* U.S. Treasury auctions $19 billion of 10-year inflation-protected securities
* U.S. corporate earnings: FedEx, Lennar, Darden Restaurants, Factset
* U.S. President Trump meets UK Prime Minister Keir Starmer during state visit to Britain
* Canada’s Prime Minister Mark Carney meets Mexico’s President Claudia Sheinbaum in Mexico
by Mike Dolan; editing by Philippa Fletcher
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Mike Dolan is Reuters Editor-at-Large for Finance & Markets and a regular columnist. He has worked as a correspondent, editor and columnist at Reuters for the past 30 years – specializing in global economics and policy and financial markets across G7 and emerging economies. Mike is based in London but has also worked in Washington DC and in Sarajevo and has covered news events from dozens of cities across the world. A graduate in economics and politics from Trinity College Dublin, Mike previously worked with Bloomberg and Euromoney and received Reuters awards for his work during the financial crisis in 2007/2008 and on Frontier Markets in 2010.