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:
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:
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)
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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.
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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.
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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.