Futures Jump To Fresh Record High After Fed Restarts Rate Cuts

Futures are higher and back into record territory as investors shrug off some contradictions in the Fed’s policy statement and Powell’s hawkish news conference and refocus on the most dovish Fed statement since 2021, per JPM. “For whatever reason, it appears the Fed’s reaction function has shifted in a more dovish direction,” according to Bloomberg Econ head Anna Wong. S&P 500 futures were 0.8% higher at 8:05 am ET while Nasdaq 100 futures were +1.1%. Pre-mkt, Mag7 / Semis are bid up with NVDA +2.3%, AVGO +1.9%, TSLA +1.6%, GOOG +1.3%; tech was boosted by news that NVDA would buy a $5BN stake in rival chipmaker Intel.  Nikkei +1.15%, Hang Seng -1.35%, Shanghai -1.15%, FTSE +15bps, CAC +1.1%, DAX +1.2%. “Last night the market was taking the view that this wasn’t so much of a dovish cut but, after sleeping on it, it decided that it was enough to keep the market going,” said Karen Georges, an equity fund manager at Ecofi in Paris. “Fed cuts are good for tech and long duration stocks.” Sure enough, both tech and small caps are outperforming as the US is poised for an “Everything Rally” alongside a global risk-on tone. The yield curve is bull flattening and USD is flat. Large-Caps across all the super-sectors are higher pre-mkt. Today’s macro data focus is on jobless claims where investors will look to confirm last week’s spike was a one-off. 

In premarket trading, Mag 7 stocks are green across the board (Tesla +1.1%, Nvidia +3%, Alphabet +1.2%, Microsoft +0.3%, Apple +0.4%, Amazon +0.5%, Meta Platforms +0.6%). Some other notable movers:

• 89bio (ETNB) surges 83% after Roche said it will acquire the biopharmaceutical company for up to $3.5 billion.
• Cracker Barrel (CBRL) falls 8% after its sales guidance missed expectations, showing the brand is still dealing with the fallout from its controversial and short-lived logo change.
• CrowdStrike (CRWD) rises 4% in the wake of an investor briefing where the software company discussed its AI strategy and gave a preliminary FY27 outlook for net new annual recurring revenue that analysts see as strong.
• Darden Restaurants (DRI) falls 6% after adjusted earnings per share missed expectations. Same-store sales growth for Olive Garden also came in below consensus estimates.
• FactSet (FDS) slips 3% after the the financial data provider forecast adjusted earnings per share for 2026, guidance that missed the average analyst estimate.
• GE Healthcare Technologies (GEHC) ticks 1.7% higher as the company is exploring options including the sale of a stake in its China unit, people familiar with the matter said.
• Intel (INTC) climbs 28% after Nvidia agreed to invest $5 billion in the company and said the two will codevelop chips for PCs and data centers.
• IonQ (IONQ) gains 4% after the company signed a MOU with the US Department of Energy to advance the development and deployment of quantum technologies in space.
• Red Cat Holdings (RCAT) falls 10% after the drone technology company launched a secondary offering of shares via Northland Capital Markets.

In tech news, Huawei unveiled new technology from memory chips to AI accelerators, outlining a multiyear plan to challenge Nvidia’s dominance. Elsewhere, the FT reported that China has decided to end an antitrust investigation into the dominance of Google’s Android. And Meta unveiled its first smart glasses with a built-in screen, the $799 Meta Ray-Ban Display. 

In other corporate news, Disney’s ABC is taking Jimmy Kimmel Live! off the air indefinitely amid a backlash to remarks the late-night host made about the killing of Charlie Kirk. And Eli Lilly said that Mounjaro helped kids as young as 10 control their blood sugar and lose weight.

While stocks initially fluctuated in the hours after the Fed’s decision, on Thursday investors turned their focus to projections showing two more rate cuts for 2025, one more cut than they saw in June.  That said, there is no smoking guy for the overnight strength with as news flow is light. Strategists said the Fed’s focus on recent labor-market weakness suggests it’s ready to support the economy, even at a time when growth remains robust and corporate profits advance. According to Goldman, the “FOMC statement leaned dovish while Powell was more balanced and framed the cut as “risk management” in response to downside risks in the labor mkt.”

“The ‘front-loading’ is probably the most important part of all this,” said Michael Brown, research strategist at Pepperstone Group Ltd. “If labor market weakness persists, then the Fed will continue to cut. The monetary backdrop is set to become much easier, much sooner.”

Also overnight, Norway’s Norges Bank cut 25bps (as expected) and the the BoE kept rates unchanged at 4.00% also as expected.

Meanwhile, the AI narrative remains a key thematic driver for many, while small-caps — typically more sensitive to rate cuts — are quietly breaking out of a long-term downtrend. Citigroup strategists note that Fed cuts have historically been a tailwind for global equities and a catalyst for broadening market performance.  And investors who have driven stocks to record highs do expect a rather positive growth backdrop. Bank of America’s fund manager survey published this week showed that 67% anticipate a soft landing and 18% no landing, with only 10% braced for a downturn.

Europe’s Stoxx 600 is up by 0.6% with tech firms leading the way. Here are some of the biggest European movers today:

• Kone shares rise as much as 5%, hitting their highest level since early 2022, as the Finnish company is exploring a potential bid for rival TK Elevator
• Wolters Kluwer shares rise as much as 5.6% on Thursday after the professional publisher said it’s speeding up the pace of share buybacks
• Renishaw advances as much as 9.2%, hitting the highest since mid February, after the precision measuring equipment maker reported its full-year results
• Nanobiotix shares rise as much as 20% to the highest since October 2021 after the French biotechnology company announced positive new results from an early-stage clinical study
• Inchcape shares climb as much as 5% after analysts at UBS initiated coverage on the automotive distributor with a buy rating
• Spire Healthcare shares rise as much as 7.7% as certain investors push the private hospital operator to explore a sale, according to a report from Sky News
• OVS shares rise as much as 8.1% in Milan, the most since April 10,  after the Italian fashion retailer reported an increase in adjusted Ebitda and net sales for the first half of the year.
• Lime Technologies gains as much as 7.6%, the most since May, after DNB Carnegie raised its view on the Swedish enterprise software group to buy from hold
• SIG shares fall as much as 24%, the most on record, triggering a temporary trading halt after the Swiss packaging maker cut its revenue growth guidance for 2025
• Next shares drop as much as 6.6% after the UK fashion retailer said it expects UK sales growth to be lower in the second half compared with the first
• Barry Callebaut falls as much as 5.1%, the most in a month, after Deutsche Bank cut its recommendation on the Swiss chocolate firm to hold from buy
• Pets at Home shares plummet as much as 23%, marking the biggest drop on record, after the pet supply retailer warned the market remained subdued

Earlier in the session, Asian stocks fell, weighed by late losses in Chinese shares as a tech-led rally showed signs of cooling. The MSCI Asia Pacific Index dropped as much as 0.7%, on course to snap a 10-day winning streak. Chinese tech giants Tencent and Alibaba were among the main drags on the gauge. Australian energy firm Santos also posted steep losses after a third attempted sale faltered. The decline on Thursday puts a pause on the Asian benchmark’s climb after hitting a record high in the previous session. Sentiment in the region was downbeat even as the Federal Reserve cut interest rates. Trading in Chinese equities turned volatile late in the day, with analysts pointing to profit taking after the recent rally. Mainland China’s benchmark CSI 300 Index fell 1.2%, while a gauge of Hong Kong-listed Chinese shares dropped 1.5%. Equities also fell in New Zealand after the country’s economy shrank more than expected in the second quarter.  Elsewhere, South Korea outperformed as chipmakers got a boost from expectations for earnings to beat estimates amid an environment of lower borrowing cost. Tech stocks also rose in Japan on continued interest in artificial intelligence.

In FX, the dollar swoons against G-10 currencies, with the Bloomberg Dollar Spot Index erasing most of its earlier gain. New Zealand dollar is the worst performer following a weak GDP reading. Sterling and gilts are steady ahead of an expected hold from the Bank of England. Norwegian krone pares its decline against the euro after Norges Bank cuts rates but gives a hawkish outlook.

In rates, US Treasuries outperform peers as European bonds decline; Treasuries held gains accumulated during Asia session and European morning, erasing Wednesday’s losses that followed Fed Chair Powell’s post-FOMC comments advocating a cautious approach to further easing.  Treasury yields are 3bp-4bp richer across the curve with intermediates leading, flattening 2s10s and 2s5s spreads by about 1bp; 2s5s30s fly is about 1.5bp richer after widening sharply Wednesday. US 10-year yield is back down to around 4.05%, richer by 4bp on the day, with bunds and gilts in the sector lagging by 5bp. Following Wednesday’s FOMC rate cut, OIS contracts price in around 45bp of additional easing over this year’s two remaining meetings and a terminal rate of around 2.9% by mid-2026. Treasury auctions resume at 1pm New York time with $19 billion 10-year TIPS reopening. Focal points of US session include weekly jobless claims data and a 10-year TIPS reopening. UK gilts have had muted initial reaction to Bank of England voted 7-2 to keep policy rate at 4% as expected.

In commodities, gold reverses an earlier decline to gain about $9 to around $3,668/oz and oil prices fluctuate in a narrow range, with Brent below $68/barrel.

US economic data slate includes weekly jobless claims and September Philadelphia Fed business outlook (8:30am), August Leading index (10am) and July TIC flows (4pm)

Market Snapshot

• S&P 500 mini +0.9%
• Nasdaq 100 mini +1.1%
• Russell 2000 mini +1.5%
• Stoxx Europe 600 +0.8%
• DAX +1.3%
• CAC 40 +1.2%
• 10-year Treasury yield -4 basis points at 4.05%
• VIX -0.9 points at 14.83
• Bloomberg Dollar Index little changed at 1191.67
• euro +0.1% at $1.183
• WTI crude -0.3% at $63.88/barrel

Top Overnight News

• US government shutdown risks are rising, with Democrats demanding health care policy changes that House Speaker Mike Johnson has said have “zero” chance of becoming law. The US House cleared the procedural hurdle for a floor vote this week on the stopgap funding measure to avert a government shutdown. BBG
• Punchbowl, on the possibility of a US shutdown, surmises “Republican and Democratic leaders are growing further apart rather than closer.”
• Donald Trump’s UK visit turns to diplomatic talks with PM Keir Starmer, which are expected to focus on trade and the war in Ukraine. There will be a joint press conference, at which some tech investments may be announced. BBG
• The Trump administration is drawing up plans to use tariff revenue to fund a program to support US farmers as they head into harvest facing falling export sales and rising input costs. FT
• China is dropping an antitrust probe into Google, as Beijing and Washington step up negotiations over TikTok, Nvidia and trade at a time of heightened tensions between the superpowers. FT
• China rare earth exports jumped to a record level in Aug as Beijing permits expanded shipments following an easing of tensions with Washington. BBG
• Huawei outlined its long-term chip plans for the first time on Thursday and said it would launch some of the world’s most powerful computing systems – underscoring China’s drive to wean itself off foreign semiconductor suppliers like Nvidia. RTRS
• Norway’s central bank lowered rates by 25bp to 4%, as expected, and while it forecast additional cuts over the coming year, it also noted that “a somewhat higher policy rate will likely be needed ahead compared with the outlook in June. Norges Bank
• Germany will borrow about a fifth more than planned in the fourth quarter to help fund a surge in spending on infrastructure and the armed forces. They aim to raise €90.5 billion ($107 billion) in the October-December period, excluding green bonds, according to an updated plan published Thursday. That’s €15 billion more than December’s original program and follows an increase of €19 billion in the third quarter. BBG
• The BOE will probably announce a slowing of gilt sales at its decision today amid concern about worsening bond market volatility. No rate change is expected. BBG

Trade/Tariffs

• China is reportedly dropping the Google (GOOG) antitrust probe during US trade talks, according to FT.
• US House China Panel Chair said he’s concerned regarding the TikTok deal.
• Brazilian President Lula said he has no relationship with US President Trump, while he described US tariffs as ’eminently political’ and said US consumers would be facing higher prices for Brazilian goods as a result, according to a BBC interview. It was also reported that Lula signed an executive order that exempts some data centre equipment from federal taxes.
• Chinese Commerce Ministry says it will review approval for technology and intellectual property transfers linked to TikTok.

A more detailed look at global markets courtesy of Newsquawk

APAC stocks traded mixed following the choppy reaction to the FOMC meeting, where the Fed cut rates by 25bps, as expected, and just about signalled two further rate cuts this year, although Fed Chair Powell provided some hawkish-leaning comments during the presser. ASX 200 declined with underperformance in energy as Santos shares suffered a double-digit percentage drop after the XRG consortium abandoned its USD 18.7bln takeover bid, while sentiment was also not helped by a surprise contraction in employment data. Nikkei 225 rallied back above the 45k level and printed a fresh all-time high amid currency weakness and with the index unfazed by disappointing  machinery orders, while the BoJ kick-started its 2-day policy meeting where it is widely anticipated to remain on pause. Hang Seng and Shanghai Comp were mixed with continued tech strength seen after China’s CAC reportedly informed firms such as Alibaba and ByteDance to terminate their testing and orders of NVIDIA’s RTX Pro 6000D, in order to focus on China’s domestic semiconductor industry, while Huawei unveiled its new AI chip tech to rival the AI darling. Nonetheless, the Hong Kong benchmark faded early gains despite the HKMA cutting rates in lockstep with the Fed, with a pullback seen after it briefly breached the 27,000 level for the first time in four years.

Top Asian News

• Hong Kong Monetary Authority lowered its base rate by 25bps to 4.50%, as expected, while HKMA Chief Executive Yue said the interest rate cut will have a positive impact on the property market and the economy.
• Huawei unveiled its new AI chip tech to rival NVIDIA (NVDA), with the Co. to launch its Ascend 950PR chips during Q1 2026 and plans new AI chips through 2028, while Huawei’s Vice Chairman said the Co. will launch Taishan 950 SuperPod for general-purpose computing in Q2 2026.
• New Zealand Finance Minister Willis announced the appointment of Haley Gourley to the RBNZ Monetary Policy Committee.
• SoftBank (9984 JT) and OpenAI’s Japanese AI joint venture reportedly delayed, according to Reuters sources.
• Japanese former digital minister Kono is to back Koizumi in the LDP leadership race, according to Kyodo News

European bourses (STOXX 600 +0.8%) opened firmer across the board and has continued to hold an upward bias throughout the morning. Positive sentiment which comes after the Fed decided to cut rates by 25bps, but it has been described as a “hawkish cut” by some analysts. Nonetheless, sentiment has been boosted across the equities complex. European sectors opened mixed but now has a very slight positive tilt. The cyclical sectors are all towards the top of the pile, with sentiment boosted following the Fed’s decision to cut rates by 25bps; Tech continues its past couple of days of outperformance, largely led by Dutch semi-conductor names; ASML (+2.5%), BE Semi (+2%). Industrials take the second spot, then followed by Construction & Materials. To the bottom of the pile lies Optimised Personal Care, followed closely by Media and Retail; the breadth of those in negative territory is very narrow.

Top European News

• Norwegian Key Policy Rate 4.0% vs. Exp. 4.0% (Prev. 4.25%); Committee judges that a somewhat higher policy rate will likely be needed ahead compared with the outlook in June. Updated MPR: Q4-2025 4.00% (prev. 3.98%), Q1-2026 4.00% (prev. 3.81%), Q2-2026 3.92% (prev. 3.62%), Q3-2026 3.85% (prev. 3.49%), Q4-2026 3.74% (prev. 3.39%). Q4-2027 3.34% (prev. 3.14%).
• Norges Bank Governor Bache says activity picked up more than expected The timing of the next move is not certain.
• German government to raise additional EUR 10.5bln via capital market in Q4.
• German Debt Agency Head says the nation will not issue 50yr bonds; seeing good demand for long-dated bonds from central banks German paper is benefiting from uncertainty regarding France.
• ECB’s de Guindos says need to pay a lot of attention to NEER rather than just EUR/USD Risk of undershooting for the ECB is “not big” or “especially relevant”. Risks to inflation are balanced and two-sided. Do not target a specific EUR level.

FX

• USD trimmed earlier gains after ultimately strengthening in the aftermath of the FOMC with initial selling seen in reaction to the Fed’s decision to cut interest rates by 25bps, which was as expected, and as the SEPs showed projections for two more cuts this year. The dollar rebounded during the post-meeting press conference, where Powell provided hawkish-leaning comments in which he noted that he feels they don’t need to move quickly on rates. DXY resides in a 96.897-97.311 range at the time of writing.
• EUR is posting mild intraday gains in tandem with the dollar trimming earlier upside. Newsflow for Europe has been light, although ECB’s de Guindos hit the wires and suggested the ECB needs to pay a lot of attention to NEER rather than just EUR/USD, whilst the risk of undershooting for the ECB is “not big” or “especially relevant”, and risks to inflation are balanced and two-sided. EUR/USD resides in a 1.1780-1.1838 range.
• USD/JPY swung between gains and losses in reaction to the Fed, with USD/JPY eventually reclaiming the 147.00 status, while the Japanese currency was not helped overnight by disappointing Machinery Orders, and the BoJ also kick-started its 2-day policy meeting, where it is widely expected to keep rates unchanged. Elsewhere, Japanese LDP leadership candidate Hayashi, noted that Japan’s consumption tax is an important source of revenue to fund social welfare costs, and added that “Abenomics” was an appropriate policy at a time when Japan was suffering. Hayashi also suggested that Japan’s conditions have allowed the BoJ to raise rates, the economy is now at a new phase, and Japan’s inflation is cost-push, not demand-driven. USD/JPY trades in a current 146.77-147.53 range.
• Cable faded the knee-jerk reaction to the FOMC and reverted to sub-1.3700 territory, while attention turns to the BoE. The BoE is expected to keep the Base Rate at 4.0% via a 7-2 vote, following August’s close-cut easing. Inflation remains above target, with further easing not fully priced until April 2026. Attention will focus on any guidance on future cuts and on quantitative tightening, where consensus expects a slowdown to GBP 70bln per annum from October. BoE is expected to slow the pace of QT, reducing gilt sales to GBP 70bln a year (from GBP 100bln) amid concerns that current sales are exacerbating bond market volatility, with limits also possible on long-dated gilt disposals, according to a Bloomberg survey. Cable trades in a 1.3586-1.3640 range
• Antipodeans are both softer with the Kiwi the marked G10 laggard following weak GDP data for Q2 in which the economy contracted by 0.6% Y/Y (exp. 0.0%) and resulted in money markets fully pricing a cut at the RBNZ meeting in October with an off chance for an oversized 50bps reduction.
• EUR/NOK knee-jerked higher on the Norges Bank’s decision to cut rates by 25bps, but soon reversed as traders digested the hawkish MPR and commentary.
• PBoC set USD/CNY mid-point at 7.1085 vs exp. 7.1113 (Prev. 7.1013).
• Brazil Central Bank maintained the Selic rate at 15.00%, as expected, with the decision unanimous. BCB removed the reference to the continuation of the interruption of the rate hiking cycle and said it will remain vigilant, while it will evaluate whether maintaining the interest rate at its current level for a very prolonged period will be enough to ensure the convergence of inflation to the target. Furthermore, it stated that future monetary policy steps can be adjusted, and it will not hesitate to resume the rate hiking cycle if appropriate.

Fixed Income

• A firmer start to the day for USTs. Following the two-way moves seen on the Fed with the 25bps cut and statement sparking a dovish move, however, this then reversed into and during the press conference from Chair Powell. As it stands, USTs are higher by a handful of ticks towards the upper-end of a 113-00 to 113-12 band. From the Fed, a few points of note worth briefly discussing. Firstly, the vote split saw just Miran dissent and push for a 50bps move, with the omission of Bowman and/or Waller from the 50bps camp of note, and potentially factoring into the initial reversal of the dovish move seen before Chair Powell began. Thereafter, Powell was much more hawkish than the statement suggested. Powell placed less emphasis on the dovish statement/SEP, described the cut as a risk management decision in response to “meaningful” downside risks to the labour market. Now attention turns to Jobless Claims.
• Bunds moved in tandem with USTs on Wednesday evening. This morning, the benchmark has been a little choppy. Initially held near the unchanged mark before picking up a little bit in the European pre-market, seemingly as European futures waned ever so slightly from best levels. However, this strength didn’t amount to much with Bunds only firmer by 10 ticks at best. Since, the benchmark has pulled back into the red and resides towards the lower end of a 128.75 to 129.02 band. No move in Bunds to the slightly softer than usual, but still robust enough, Spanish tap; and a strong French outing.
• For Gilts, the main event today is the BoE. Into it, Gilts are a touch softer moving in tandem with Bunds, at the low end of a 91.44-67 band. The decision is, all but certain, to be unchanged at 4.00%. On this, the vote split may draw some attention as we are likely to see dovish dissent from Dhingra (in-fitting with her known bias) and Taylor (voted for 50bps cut last time, changed to 25bps in order to attain a consensus). More pertinently, the balance sheet. The BoE is expected to provide an update on QT. The pace will undoubtedly be slowed from the current GBP 100bln per anum rate from October. Consensus is for a reduction to around GBP 70bln.
• Spain sells EUR 5.41bln vs exp. EUR 5-6bln 2.40% 2028, 3.20% 2035, and 4.00% 2054 Bono.
• France sells EUR 11.5bln vs exp. EUR 9.5-11.5bln 0.75% 2028, 2.40% 2028, 2.70% 2031, and 3.50% 2033 OAT.

Commodities

• WTI and Brent are subdued but confined to a tight range in the aftermath of the Fed and with notable energy-specific newsflow on the lighter side. WTI currently resides in a USD 63.14-63.91/bbl range while Brent sits in USD 67.37-68.01/bbl parameters.
• Spot gold began the European session in the red, pressured by the firmer Dollar in the aftermath of the Fed’s decision to cut rates by 25bps, and the hawkish-leaning Powell presser thereafter. As the morning progressed, the Dollar did come off best levels, which has allowed XAU/USD to climb into modest positive territory; currently trading towards the upper end of a USD 3,634.28-3,671.67/oz range.
• Base metals subdued across the board despite firmer sentiment in Europe but following the losses seen across Chinese markets. 3M LME copper fell back under USD 10k/t and found resistance at the level, residing in a USD 9,931.55-9,999.95/t band.
• Peru’s President signed a modification contract, allowing Chevron (CVX) and Westlawn’s formal entry into Peru.
• Spot gold was contained after ultimately retreating as the dollar strengthened due to Fed Chair Powell’s hawkish tone at the post-FOMC presser.
• Qatar raises November term price for Al-Shaheen oil to USD 3.61/bbl, via Reuters citing sources.
• Russian Finance Minister says they plan to lower the bar for oil and gas revenue formation when preparing the budget; plan to lower cut-off price of oil, currently at USD 60/bbl, by USD 1bln every year to 2030.

Geopolitics

• Syrian President al- Sharaa told reporters that security talks with Israel could lead to results in the “coming days” and if a security pact succeeds, “other agreements” could be reached but “peace, normalisation” is not currently on the table, while he added there is no pressure on Damascus to reach a deal with Israel from Washington.

US Event Calendar

• 8:30 am: Sep 13 Initial Jobless Claims, est. 240k, prior 263k
• 8:30 am: Sep 6 Continuing Claims, est. 1950k, prior 1939k
• 8:30 am: Sep Philadelphia Fed Business Outlook, est. 1.7, prior -0.3
• 10:00 am: Aug Leading Index, est. -0.2%, prior -0.1%
• 4:00 pm: Jul Net Long-term TIC Flows, prior 150.8b
• 4:00 pm: Jul Total Net TIC Flows, prior 77.8b

DB’s Jim Reid concludes the overnight wrap

Last night the FOMC delivered its first rate cut of 2025, lowering the fed funds rate by 25bp to 4.00-4.25% as expected. But with Chair Powell describing the decision as a “risk-management cut”, markets were left feeling less confident on the extent of the likely easing cycle and Treasury yields were higher across the curve by the close with US equities flattish after a choppy post FOMC last couple of hours of trading. This morning in Asia markets have taken a slightly more positive take with S&P (+0.49%) and NASDAQ futures (+0.73%) rallying and US Treasury yields 2-2.5bps lower across the board.

As expected by our economists, the Fed’s dot plot saw the median dot narrowly shift from 50bp to 75bps of total cuts for 2025, so implying 25bps cuts at each of the remaining two meetings. The 2026 and 2027 median dots were also 25bps lower at 3.4% and 3.1% respectively even as median growth and inflation projections for 2026 were both revised two-tenths higher compared to June. This suggested a more dovish Fed reaction function to the evolving balance of risks, and in the press conference Chair Powell said it was “risks that we’re seeing to the labour market” that drove the rate cut as the labour market could no longer be described as “solid”.

However, Powell also noted that the balance of risks was still slightly tilted towards inflation concerns and de-emphasised the dot plot signal of two additional 2025 cuts, rather saying that the FOMC was in a “meeting-by-meeting situation”. So left a sense that the Fed is not yet envisaging an aggressive easing cycle and fed funds futures drifted higher in response, with December 2026 pricing rising by +7.5bps on the day to 2.93%.  Our US economists note that while there was greater-than-expected unity in yesterday’s decision – with Stephen Miran, who joined the Fed Board of Governors earlier in the week, being the lone dissent in advocating for a 50bp cut – the dot plot still signaled a highly divided Committee, with 2026 dots spread pretty evenly from 2.5% to 4.0%. Our economists maintain their baseline of two more 25bps cuts in October and December, but see risks of a skip if labor market and inflation data both surprise to the upside. 

Markets have seen saw a topsy-turvy reaction post-FOMC. An initial kneejerk rally in Treasuries turned into a sell-off with 2yr yields closing +5.0bps higher at 3.55% despite trading as low as 3.466% just after the decision. There were similar yield rises for the 10yr (+6.0bps to 4.09%) and 30yr (+4.2bps to 4.69%). As discussed at the top yields are back down a couple of basis points this morning. A negative turn was also visible in equities, with S&P 500 falling as a low as -0.84% intra-day as Powell spoke, though the index recovered back to only -0.10% down by the close. Information technology (-0.70%) led the declines for the S&P but more domestic and rate-sensitive sectors advanced, led by financials (+0.96%) and consumer staples (+0.90%). As also discussed at the top US futures have rebounded this morning. Meanwhile, the dollar index is up +0.18% overnight, building on yesterday’s +0.25% advance that came despite an initial post-FOMC decline of nearly -0.5%.

Before the Fed, European markets put in a mixed performance, with the STOXX 600 (-0.03%) posting a marginal decline. In part, that was simply investors remaining in a holding pattern before the Fed, but matters weren’t helped by an underperformance in French assets, as limited progress on the budget talks between new PM Lecornu and the Socialists unsettled investors. So that meant the CAC 40 (-0.40%) underperformed, and the 10yr Franco-German spread widened +1.1bps to 81bps, closing back in on its 8-month high.

Outside of France however, European markets put in a better performance, and in absolute terms we saw yields move lower across the continent. That was helped by a downward revision in the final Euro Area CPI print for August, which came in at +2.0% (vs. flash +2.1%), so exactly in line with the ECB’s target. So the downward inflation revision and the prospect of a Fed rate cut helped yields on 10yr bunds (-2.1bps), OATs (-0.9bps) and BTPs (-1.4bps) to fall back.
Looking forward, central banks will stay in the spotlight today, as the Bank of England announce their latest policy decision. It’s widely expected that they’ll keep rates unchanged at 4%, and our UK economist Sanjay Raja expects a 7-2 vote split. So the main focus will instead be on any changes to their forward guidance and the QT decision. In his preview (link here), he argues that there’s a material risk that the MPC abandons its “gradual and careful” guidance surrounding the downward path for Bank Rate. And on QT, he expects the MPC to reduce their QT envelope from £100bn to £70bn with a broad landing zone of £65-75bn. Ahead of the decision, we also had the latest UK inflation data for August, although there was little market reaction as it was much as expected. So headline CPI was steady at +3.8%, whilst core CPI fell to +3.6%, both in line with consensus. 

Asian equity markets are mostly rallying this morning on the Fed move with the Nikkei (+1.33%) and KOSPI (+1.19%) notably higher. In contrast, the Hang Seng (-0.21%) is slightly lower, erasing earlier gains, while both the CSI (+0.32%) and the Shanghai Composite (+0.45%) are up. The S&P/ASX 200 (-0.60%) is defying the regional trend following a disappointing jobs report.

Australia’s unemployment rate remained stable at 4.2% in August, but employment unexpectedly declined, with the economy losing approximately 5,400 jobs, including a drop of 41,000 in full-time positions, despite an increase in part-time roles. The report implies that the labour market may be gradually softening. There is no change to the house view of a November, February and March series of 25bps cuts to a 2.85% terminal rate but the report leans on the dovish side.  

Additionally, New Zealand’s economy contracted more than anticipated in the second quarter, as weak manufacturing activity and declining export volumes largely counterbalanced modest growth in private spending. The economy contracted by -0.9% q/q, worse than the expected -0.3% decline, and reversing the revised +0.9% increase from the previous quarter. Furthermore, GDP decreased by -0.6% y/y, falling short of expectations that growth would remain stable. GDP had also declined by -0.6% in the first quarter.

Elsewhere in markets, the FT reported that China’s internet regulator had told the country’s tech companies to stop buying Nvidia AI chips and terminate its existing orders. The news caused Nvidia to fall -2.62% yesterday, making it the worst performer in the Magnificent 7 (-0.40%).  Separately, US housing data for August showed the fewest building permits since May 2020 during the pandemic, down c.11% YoY and to an annualised rate of 1312K (vs. 1370k expected).

Finally on central banks, the Bank of Canada cut their overnight rate by 25bps as expected to 2.5%. It was the first rate cut since March, but there was little guidance in the statement on where policy was heading next, and the statement said that they were “proceeding carefully”. That backdrop saw Canadian government bond yields move higher, with the 10yr yield up +3.9bps to 3.19%.

To the day ahead now, in addition to the BoE’s decision we’ll also get the Norges Bank decision. Data releases include the US September Philadelphia business outlook, August leading index, July total net TIC flows and initial jobless claims. In Europe, we’ll receive Italy’s July current account balance, ECB July current account and the Eurozone July construction output. Lastly, the US will also be holding its reopening of 10-yr TIPS Auction.