Shares, Bonds Rangebound as Investors Digest Fed Minimize: Markets Wrap

(Bloomberg) — Asian equities were primed for muted moves following declines on Wall Street after the Federal Reserve’s half-point interest rate cut on Wednesday.

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Equity futures for Japan rose while those for Australia fell, with moves contained to less than 1%. The S&P 500 initially jumped to an all-time high before retreating to end the session 0.3% lower on Wednesday while the Nasdaq 100 dropped 0.5%. Hong Kong markets will resume trading after a holiday.

The Fed’s first cut in more than four years was accompanied by projections indicating a narrow majority favored an additional 50 basis points of cuts across the remaining two policy meetings this year. Markets were pricing in a more aggressive 70 basis points of reductions. Fed Chair Jerome Powell cautioned against assuming big rate cuts would continue.

“It’s actually anyone’s guess,” said Chamath de Silva, head of fixed income at Betashares Holdings in Sydney, referring to market reaction in the region. “I’m not expecting big moves and it wouldn’t surprise me if Asian equities end the session little changed and wait for more clues from tonight’s follow-up US market reaction.”

An index of dollar strength erased its gains from the previous session early on Thursday, while the yen strengthened to trade at around 142 per greenback. Treasury 10-year yields advanced six basis points to 3.7% on Wednesday.

In the US, equities, especially those of economically sensitive companies, briefly surged Wednesday, driving the S&P 500 up as much as 1%. From stocks to Treasuries, corporate bonds to commodities, every major asset was down Wednesday. While the scale of the declines were minor, a concerted pullback like that hadn’t followed a Fed policy decision since June 2021.

Gold pulled back from a record high while oil edged lower as signs of weak demand outweighed rising tensions in the Middle East.

“After a rally ahead of today’s Fed announcement, it wouldn’t be unreasonable for the market to pull back a bit,” said Bret Kenwell at eToro. “However, the long-term outlook remains promising. So long as the economy holds up and inflation doesn’t roar back to life, lower rates and strong earnings growth can continue to drive stocks higher over the long term.”

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In Asia, data set for release includes unemployment for Australia and Hong Kong, trade figures for Malaysia and an interest rate decision in Taiwan.

In contemplating the market reaction to a half-point cut coming into the meeting, some expected the reaction to be positive because of the benefit to the economy, some expected a drop due to ‘what do they know that we don’t know’ logic, according to Mark Hackett at Nationwide.

“The lack of directional move was the least likely outcome, but it is the one that we got,” Hackett said. “The S&P 500 is having a difficult time breaking through July’s record high, and the more failed breakouts that we observe, the more difficult one will be to achieve.”

Treasuries, which are set for a fifth-straight month of gains in September, slipped after the Fed’s decision and Powell’s remarks. Officials’ updated quarterly forecasts showed the median projections were for the funds rate to fall by year’s end to 4.375% — representing a further half-point of total reductions this year. By the end of 2025 and 2026, the median forecasts are for 3.375% and 2.875%, respectively.

“It now will be a battle between market expectations and the Fed, with employment data — not inflation data — determining which side is right,” said Jack McIntyre at Brandywine Global. “Now, everyone is back to data dependency.”

Key events this week:

• UK rate decision, Thursday

• US Conf. Board leading index, initial jobless claims, existing home sales, Thursday

• FedEx earnings, Thursday

• Japan rate decision, Friday

• Eurozone consumer confidence, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures rose 0.4% as of 7:47 a.m. Tokyo time

• Hang Seng futures were unchanged

• S&P/ASX 200 futures fell 0.5%

Currencies

• The Bloomberg Dollar Spot Index fell 0.2%

• The euro was little changed at $1.1123

• The Japanese yen was little changed at 142.19 per dollar

• The offshore yuan was little changed at 7.0919 per dollar

• The Australian dollar rose 0.1% to $0.6772

Cryptocurrencies

• Bitcoin rose 0.6% to $60,582.19

• Ether rose 0.6% to $2,340.47

Bonds

Commodities

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Georgina McKay.

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