(Bloomberg) — European and U.S. stock futures rose Thursday after the Federal Reserve signaled it may cut interest rates in September. Oil rose for a second day on tensions in the Middle East.
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The Euro Stoxx 50 contract rose 0.3%. U.S. stock index futures rose 0.6%, adding to Wall Street’s gains. Investors are now watching the Bank of England’s rate decision, the third major central bank meeting in two days. The central bank is expected to cut rates by 25 basis points, according to consensus estimates compiled by Bloomberg, the first cut since the pandemic began.
In Asia, Japanese stocks tumbled the most since 2020, while the yen gained as traders braced for more rate hikes from the Bank of Japan. The mixed fortunes reflected traders’ bet that the U.S.-Japan interest rate gap will narrow after two central bank decisions on Wednesday.
BOJ Governor Kazuo Ueda said after the rate hike that further increases would be possible if price expectations were met. Japan’s Topix index fell nearly 4% before narrowing to 148.51 against the dollar, its strongest level since March. The currency has gained nearly 8% in the past month.
“The yen has been more volatile since the Fed’s expectations changed after the July 10 US CPI data,” said Frank Benzimra, a strategist at Societe Generale. “Yesterday’s decision by the BOJ to hike has amplified volatility. We see some of the carry trades starting to reverse. We are at an inflection point. This does not mean the end of the Japanese bull market, but a pause and, importantly, a return to some domestic sectors.”
The Bloomberg Dollar Strength Index had its worst day since May on Wednesday, supporting a rally in emerging markets and Asian currencies. The Malaysian ringgit strengthened to levels not seen in nearly a year against the dollar, while the Thai baht hit a four-month high.
“Most Asian currencies are likely to appreciate against the U.S. dollar in the short term,” said Tomo Kinoshita, global market strategist at Invesco Asset Management Japan. “Since the beginning of the year, volatility has been rising in Asia due to expectations of a long-term rate hike in the U.S., which has put downward pressure on currencies, and this has prevented many Asian central banks from starting to cut rates.”
Treasury bonds fell in Asian trading, partially unwinding Wednesday’s rally. Yields fell more than 10 basis points across the curve on Wednesday, on expectations of a Fed rate cut. Australian and New Zealand yields fell Thursday, tracking the gains in Treasury bonds in the previous session. The gains in U.S. bonds also reflected reports that Iran had ordered retaliation for the killing of a Hamas leader on Israeli soil.
The report pushed Brent crude oil above $81 a barrel after rising 3.6% in the previous session. Gold was stable just below record highs.
In Europe, BMW AG’s second-quarter profit fell due to lower sales in key market China, while ArcelorMittal SA reported a profit drop and warned that excessive Chinese exports had made the steel market unsustainable.
Federal Reserve System
The change in the Fed statement solidifies a change in tone from several policymakers, including Powell, who recognize that risks to the labor market are growing. It also likely to strengthen expectations among economists and investors for a rate cut at the central bank’s September 17-18 meeting.
“Powell’s comments last night were definitely positive for risk assets as they strongly implied a September cut,” said Pauline Crystal, fund manager at Kapstream Capital in Sydney. “The recession risk is greater as there is greater confidence that the US economy is still resilient and inflation is returning to target.”
Interest rate swaps showed traders were still fully pricing in a 0.25 percentage point cut in September, bringing the total cut this year to around 70 basis points.
“The data has moved in Powell’s direction and he is now ready to follow suit,” said David Russell of TradeStation. “The next big things are Friday’s jobs data and the CPI two weeks later. If they go well, we could get a clearer message from Powell in Jackson Hole in late August.”
Key events this week:
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Eurozone S&P Global Eurozone Manufacturing PMI, Unemployment Rate, Thursday
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U.S. New Jobless Claims, ISM Manufacturing, Thursday
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Amazon, Apple Earnings, Thursday
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Bank of England interest rate decision, Thursday
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U.S. Employment, Factory Orders, Friday
Some of the key market moves:
stock
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S&P 500 futures were up 0.6% as of 6:45 a.m. London time.
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Nikkei 225 Futures (OSE) down 2.9%
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Japan’s Topix fell 3.2%.
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Australia’s S&P/ASX 200 rose 0.4%.
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Hong Kong’s Hang Seng Index rose 0.2%
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The Shanghai Composite Index rose 0.1%.
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Euro Stoxx 50 futures rose 0.3%.
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Nasdaq 100 futures rose 0.9%.
call
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The Bloomberg Dollar Spot Index was little changed.
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The euro was little changed at $1.0829.
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The Japanese yen was virtually unchanged at 149.90 per dollar.
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The overseas yuan fell 0.1 percent to 7.2344 per dollar.
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The Australian dollar fell 0.2% to $0.6530.
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The British pound was little changed at $1.2849.
Cryptocurrency
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Bitcoin fell 0.5% to $64,267.13.
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Ether fell 1.2% to $3,181.52.
bond
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The 10-year Treasury yield rose 3 basis points to 4.06%.
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Japan’s 10-year yield was little changed at 1.040%.
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Australian 10-year yields fell 3 basis points to 4.08%.
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This article was created with the assistance of Bloomberg Automation.
–With assistance from Richard Henderson.
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