US equity futures are flat into today's Fed decision, with the long end of the yield curve moving lower. As of 8:10am ET, S&P and Nasdaq futures are down 0.1%, with Nvidia lower in premarket trading after the FT reported that China has ordered some companies to terminate orders for a certain type of AI chip (AMD -1%, AVGO flat). Other Mag7 names are flat. Cyclicals are under pressure. In other assets ahead of the Fed, the dollar is near its lowest level in three years although it is catching a bid after losing nearly 1% the last two days, while gold held near a record high. The commodity complex is weaker with notable losses in silver and coffee, each down more than 2.2%. In addition to the Fed today, we also have Housing starts and building permits ahead of tomorrow's jobless data.
In premarket trading, Mag 7 stocks are mixed with Nvidia 1% lower in premarket trading after the FT reported that China has ordered some companies to terminate orders for a certain type of AI chip (Tesla -0.8%, Alphabet +0.4%, Microsoft +0.3%, Apple -0.1%, Amazon -0.3%, Meta -0.3%). Here are the other notable premarket movers:
The record-breaking stock rally faces a big test today, with all eyes on what could prove to be a historic Fed rate decision (where we could get as many as 4 dissents, an unprecedented outcome) and the subsequent Powell’s press conference (full preview here). With equity positioning stretched, some strategists have been warning about a pullback. Anything but a dovish tilt could disappoint. For the FOMC rate decision, a 25bp rate cut is fully priced into swaps market. Including the 25bp cut priced in for today’s FOMC decision, around 70bp of easing is anticipated by year-end. In the lead-up to the meeting, traders have been hedging potential for at least one 50bp cut resulting from one of the year’s three remaining policy meetings — occurring today and in October and December
Fed watchers expect differing views on employment and inflation will prevent officials from promising an aggressive pace of cuts. Still, bond traders are stepping up options wagers on at least one 50bp cut in this year’s three remaining policy meetings. Options markets are pricing in a move of about 0.7% in the S&P 500 after the Fed, according to Citigroup strategists.
“There’s the potential for big divergence between officials,” wrote Deutsche Bank AG strategist Jim Reid. “There’s also the possibility of multiple dissents. The last meeting saw two governors dissent for the first time since 1993, whilst Trump-appointee Stephen Miran has also joined the board now.”
The decision comes as stocks look stretched according to Bloomberg. Equity positioning for CTAs is currently in the 95th percentile of a 30-year range, and their next course of action is to take profit, according to UBS strategists. Citadel strategist Scott Rubner said US stocks could experience turbulence in coming weeks before finishing the year with a flourish.
“We expect some short-term correction in risk assets,” she said. “Vulnerability is very high and the US is especially very highly concentrated. But we’re still confident in fundamentals, and we still think it would be more of a healthy correction.”
Trump will be watching the Fed’s decision from the UK, where PM Keir Starmer is seeking to strengthen ties with the US. Tech firms including Microsoft and OpenAI announced plans to spend tens of billions of dollars on technology infrastructure in the UK, while British drugmaker GSK pledged to invest $30 billion in the US over the next five years.
In other trade news, Trump said he spoke to Indian PM Modi in a move that offers to ease tensions between the two major economies amid a fight over tariffs and New Delhi’s purchases of Russian oil. And China released a Wells Fargo banker it earlier blocked from leaving the country, according to a person familiar with the matter, ahead of a potential in-person meeting between Trump and China’Xi Jinping.
In corporate news, Apple’s smartphone sales in China in the weeks leading up to the iPhone 17 launch fell 6%, a deeper slump than is typical ahead of a new release. Klarna’s CEO is overhauling how he controls his roughly $1.1 billion stake in the financial technology firm, just days after its US listing. Private equity giants Blackstone and BlackRock are said to be vying to invest billions of dollars with Saudi Arabia’s new AI company, Humain.
Ahead of Wednesday’s Fed decision, the Bank of Canada is expected to cut its benchmark overnight rate to 2.5%, after weak jobs data and a second-quarter contraction.
European stocks edge higher, led by tech. Germany’s DAX outperforms after a gain in SAP. Here are some of the biggest European movers today:
In the UK, Bank of England policymakers got yet another unwelcome signal of sticky price pressures ahead of their rates decision on Thursday. Inflation held at its highest in more than 1 1/2 years in August, reinforcing expectations that the Monetary Policy Committee will keep rates on hold at 4%.
Earlier in the session, Asian equities swung in a narrow range after hitting an all-time high, as gains in Hong Kong and mainland China offset losses in tech-heavy South Korea and Taiwan. All eyes remain focused on the Federal Reserve’s interest-rate decision due later. The MSCI Asia Pacific Index was little changed, with Chinese Internet titans Alibaba and Tencent among the biggest boosts while chipmakers TSMC and Samsung Electronics dragged on the gauge. The regional benchmark notched its first record close in more than four years on Tuesday. China’s gains are “mostly driven by the tech companies due to rapid AI development and growing evidence of monetization,” said Vey-Sern Ling, managing director at Union Bancaire Privee “Against a backdrop of supportive government policies, cheap valuations and a cyclical bull case for emerging markets driven by US rate cuts and weaker dollar.” A gauge of Chinese stocks listed in Hong Kong surged 2.2% to the highest since July 2021. Heavyweights including Alibaba and Baidu climbed on positive analyst reports.
In FX, the Bloomberg Dollar Spot Index is little changed, sterling steady after UK inflation matched expectations. Euro-area headline CPI for August was revised lower.
In rates, treasuries hold small gains led by long-end tenors ahead of Fed rate decision at 2pm New York time, flattening the curve with 30-year yields lower by around 2.5bp on the day. US market tracks bull-flattening in European bonds, led by Germany’s, following long-end auctions and UK CPI data. With US front-end yields little changed, 2s10s and 5s30s spreads are about 2bp flatter on the day; 10-year near 4.01% is down about 1.5bp with bunds and gilts in the sector outperforming by about 0.5bp. Treasury auctions resume Thursday with $19 billion 10-year TIPS reopening; Tuesday’s 20-year bond sale drew good demand. European bond markets grind higher in line with Treasuries.
In commodities, gold slides from another record high, down by around $19 to $3,670/oz. Oil prices drops too, Brent trades closer to $68/barrel.
Today's US economic data slate includes August housing starts/building permits at 8:30am; FOMC announcement is at 2pm.
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A more detailed look at global markets courtesy of Newsquawk
APAC stocks traded mixed with global risk sentiment cautious ahead of the crucial FOMC policy decision where the Fed is expected to deliver its first rate cut for this year. ASX 200 was pressured with underperformance in the Consumer Discretionary, Real Estate, Miners and Materials sectors front-running the declines, while there was some resilience seen in Utilities, Energy and Tech. Nikkei 225 swung between gains and losses and briefly returned to the 45,000 level with price action choppy following initial currency headwinds and mixed Japanese trade data in which Exports fell for a 4th consecutive month, albeit at a much slower-than-feared pace, while Imports printed a wider-than-anticipated contraction. Hang Seng and Shanghai Comp gained with the Hong Kong benchmark led higher by tech strength as Baidu (9888 HK) rallied after an analyst upgrade due to optimism regarding its in-house chip venture and with SMIC (981 HK) testing domestically-made advanced chip-making machinery. Furthermore, Hong Kong Chief Executive Lee made several pledges in his policy address, while China also recently issued measures on increasing consumption.
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European bourses (STOXX 600 +0.1%) are mixed and price action has been rangebound throughout the morning, as traders await the FOMC later today. European sectors are mixed, and aside from top performer, the breadth of the market is fairly narrow. Tech tops the sectoral list today, following on from outperformance seen in Chinese tech-names such as Baidu; as a reminder, the Co. received an analyst upgrade related to its in-house chip venture and with SMIC (981 HK) testing domestically-made advanced chip-making machinery.
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DB's Jim Reid concludes the overnight wrap
After a relentless rally over recent sessions, risk assets struggled to keep up their momentum over the last 24 hours, with the S&P 500 (-0.13%) slipping back from its record high. The moves come ahead of today’s Fed decision, which could well be one of the most interesting in recent times. Of course, it’s widely expected that we’ll get the first rate cut since December. But all eyes will also be on the quarterly dot plot for where officials think rates will move next, as there’s the potential for a big divergence between different officials. And on top of that, there’s also the possibility of multiple dissents, particularly after the last meeting saw 2 Governors dissent from for the first time since 1993, whilst Trump appointee Stephen Miran has also joined the Board now. So, lots of themes to keep an eye on.
In terms of the decision, it’s widely expected that we’ll see a 25bp rate cut today, which would lower the target range for the fed funds rate down to 4%-4.25%. Interestingly, at the time of the last FOMC decision in July, a cut at today’s meeting wasn’t seen as a foregone conclusion at all, particularly with tariffs keeping inflation above target. But two days later, on August 1, we had a very underwhelming jobs report, which included the biggest downward revisions in years. So that undercut the previous message of labour market resilience after Liberation Day and led to a lot more concern about the “maximum employment” side of the Fed’s mandate. In turn, that meant Fed officials increasingly signalled that a cut was possible, and Chair Powell said in his Jackson Hole speech that the “downside risks to employment are rising.”
In the time since that jobs report in early August, markets have priced in a September cut as the most likely outcome, and that message was reinforced by the most recent jobs report a couple of weeks ago. Indeed, it showed payrolls up by just +22k in August, and the June print was even revised into contractionary territory. So that cemented investors’ conviction in a 25bp cut and led to a brief period of speculation about whether the Fed might do a larger 50bp cut, just like they did at the September 2024 meeting.
Even if today’s decision ends up being a 25bp cut as expected, this meeting still has the potential for dissents in both directions. In fact, yesterday saw Trump’s appointee Stephen Miran sworn in as a Fed Governor, so he’s taking part in this FOMC meeting. And our US economists write in their preview (link here ) that they expect him to dissent in favour of a 50bp cut. There’s also the potential for dissents by Governor Bowman and Governor Waller, who both voted for a 25bp cut at the last meeting. And on the hawkish side, they write that the most likely candidate for a dissent is Kansas City Fed President Schmid.
With the Fed preparing to cut rates, US Treasuries continue to rally yesterday across the curve. So, the 2yr yield (-3.5bps) fell to 3.50%, and the 10yr yield (-1.0bps) fell to 4.03%. Moreover, the 30yr yield (-1.2bps) fell to 4.65%, which is its lowest since early April in the week after Liberation Day. That momentum has continued into this morning, with the 30yr yield down another -0.7bps to 4.64%, so that’s helping to ease investor fears around the US fiscal situation as well. And this decline was clear among real yields too, and the 10yr real yield (-1.1bps) fell to 1.65% yesterday, its lowest closing level since October 2024.
However, with Treasury yields continuing to fall, that put more downward pressure on the US Dollar, with the dollar index falling to its weakest level since February 2022. And conversely, that helped the Euro to move up to $1.1867, marking its highest closing level since September 2021. Of course, the Fed’s pivot towards rate cuts has also been a factor, particularly given the ECB has now paused its own easing cycle, as that’s narrowing the differential between the two central bank rates.
Interestingly, that Treasury rally yesterday occurred despite a strong batch of US data, which pushed back against the weaker narrative we’ve seen from the labour market data. For instance, retail sales were up +0.6% in August (vs. +0.2% expected), and industrial production rose +0.1% (vs. -0.1% expected). So that boosted optimism about the growth outlook, and the Atlanta Fed’s GDPNow tracker is now pointing to an annualised growth rate of +3.4% in Q3. That would be almost in line with the +3.3% growth rate in Q2, suggesting the economy has kept up its momentum since the Liberation Day tariff announcements in early April.
Nevertheless, that stronger data was unable to support the equity rally, as the S&P 500 (-0.13%) slipped back from its record high on Monday. To be fair, it wasn’t all bad news, with the Magnificent 7 (+0.55%) advancing to a new record, whilst energy stocks (+1.73%) were the biggest sectoral outperformer in the S&P after Brent crude (+1.53%) hit a two-week high of $68.47/bbl. But there was weakness more broadly, and it was the third consecutive day where decliners outnumbered advancers in the S&P 500.
Over in Europe, equities saw even deeper losses, with major indices like the STOXX 600 (-1.14%) and the DAX (-1.77%) posting sizeable declines. As in the US, that came despite some robust economic data, with the expectations component of the German ZEW survey unexpectedly rising to 37.3 in September (vs. 25.0 expected). In the meantime, 10yr yields only saw a slight increase, with those on 10yr bunds (+0.2bps), OATs (+1.0bps) and BTPs (+0.4bps) all moving a bit higher.
On the theme of central banks, we’ll also get a decision from the Bank of Canada today, who are widely expected to deliver a 25bp rate cut of their own. As with the Fed, anticipation about a rate cut has risen notably since the last meeting, and yesterday that got further support after inflation surprised on the downside in August. The release showed headline CPI only rising to +1.9% (vs. +2.0% expected), which helped Canadian sovereign bonds to rally across the curve, with the 10yr yield (-1.7bps) falling to a 4-month low of 3.15%.
Overnight in Asia, the major equity indices have put in a mixed performance ahead of the Fed’s decision. The Hang Seng (+1.41%) is the biggest outperformer this morning, with the index currently on track for its highest close since 2021. And that’s come alongside gains for the CSI 300 (+0.60%) and the Shanghai Comp (+0.41%). However, Japan’s Nikkei (+0.04%) is basically flat, whilst South Korea’s KOSPI (-0.67%) has lost more ground, finally falling back after a run of 11 consecutive daily gains. Looking forward, US equity futures are fairly subdued, with those on the S&P 500 (-0.05%) posting a slight decline, but European futures have been stronger, with those on the DAX up +0.30%.
To the day ahead now, and the main highlight will be the Federal Reserve’s policy decision, along with Chair Powell’s press conference. We’ll also get a policy decision from the Bank of Canada. And central bank speakers include ECB President Lagarde, as well as the ECB’s Muller, Escriva, Cipollone and Nagel. Otherwise, data releases include the UK CPI print for August, along with US housing starts and building permits for August.