Making sense of the forces driving global markets |
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Wall Street and world stocks roared to new highs on Thursday, boosted by the Federal Reserve's interest rate cut the day before and a 23% surge in Intel shares, while the dollar and Treasury yields went against the easier monetary policy shift and rose too. More on that below. In my column today I look at how the Fed's statement, policymakers' revised forecasts and Powell's guidance highlighted several inconsistencies. Given the unusual degree of economic uncertainty right now, this is perhaps not surprising. If you have more time to read, here are a few articles I recommend to help you make sense of what happened in markets today. |
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- STOCKS: Japan's Nikkei hits record high. Europe up also, with tech up 4% for best day since April.
- SHARES/SECTORS: Intel soars 23%, U.S. tech is biggest sector gainer. Rotation into small caps accelerates - Russell 2000 outperforms, +2.5%.
- FX: Dollar rises against nearly all major and EM currencies. Surges 1.4% vs kiwi after NZ GDP slump, biggest rise since April. Argentina's parallel peso slides to record low.
- BONDS: Treasury yields rise, lifted by U.S. jobless claims. Long end yields up much as 5 bps to steepen the curve.
- COMMODITIES: Gold and oil slip around 0.5%, weighed down by stronger dollar.
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* Getting the Intel First the world's most powerful government invests in you, then the world's biggest company. Nvidia is investing $5 billion in Intel, taking a roughly 4% stake, just weeks after the White House engineered an extraordinary deal for the federal government to take a 10% stake in the struggling U.S. chipmaker. It's a remarkable turnaround in the fortunes of the company and CEO Lip-Bu Tan, who President Trump insisted resign earlier this year. It also stirs debate over issues such as Trump's corporate interventions, national security, US-China rivalry, and tech's place in all of the above. |
* Reading cenbank tea leaves This week has been a central bank bonanza, topped by the Federal Reserve's first rate cut in nine months and signal of more to come. The Fed's messaging may have been a little incoherent, but economic uncertainty has rarely been higher. Opinion over the Bank of England's next steps is also divided, but there is less ambiguity around some others - Brazil's central bank delivered a "hawkish" hold, and more rate cuts from Canada are on the cards. All eyes now turn to Japan. * Trump-Xi call U.S. President Donald Trump and Chinese President Xi Jinping speak to each other on Friday, with trade and tech issues front and center of discussions. There has been a fair degree of posturing, signaling and even agreement this week ahead of the call. A deal on Tiktok is close, China's Huawei has broken years of silence and outlined its chip and computing power plans, Beijing has ordered tech firms not to buy Nvidia's AI chips and cancel existing orders, but is also ending an antitrust probe into Google. |
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Heightened uncertainties feed Fed inconsistencies |
The Federal Reserve cut interest rates on Wednesday for the first time in nine months, arguing the move is necessary to counter increasing risks to the labor market. The rationale is sound enough. There's only one problem - it seems to clash with many of the U.S. central bank's revised economic projections. In his press conference following a two-day policy meeting, Fed Chair Jerome Powell stressed that employment risks have risen substantially in recent months and now outweigh inflation risks. However, policymakers lowered their median 2026 and 2027 unemployment rate projections by a tenth of a percentage point to 4.4% and 4.3%, respectively, from three months ago. How does that add up? |
The revised "dot plot" chart of rate projections also showed that Fed officials now expect three quarter-percentage-point cuts this year, up from the two projected in June. But at the same time, officials lifted their median GDP growth projections for this year and next, while also raising next year's inflation outlook. So, to recap, the Fed is cutting rates and expects to front-load that easing, due to what Powell says are "meaningful" downside risks to the labor market. Yet officials are also penciling in lower unemployment rates than they were three months ago and higher growth and inflation rates. It's a confusing picture. |
What could move markets tomorrow? |
- Japan interest rate decision
- Japan inflation (August)
- UK retail sales (August)
- UK public sector finances (August)
- European Central Bank president Christine Lagarde speaks
- Germany producer price inflation (July)
- Quarterly derivatives expiry - "quadruple witching" - in US and Europe
- U.S. Fed Governor Stephen Miran speaks
- Canada retail sales (July)
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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias. |
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