By Mike Dolan
(Reuters) -What matters in U.S. and global markets today
By Mike Dolan, Editor-At-Large, Finance and Markets
Perhaps because many of the positive twists this week were already priced in, markets have been slightly underwhelmed by the blizzard of top level trade, central bank and corporate developments over the past 24 hours.
The Federal Reserve delivered an expected quarter point rate cut on Wednesday and an end to its “quantitative tightening” this year. But Chair Jerome Powell ruffled bond market feathers by saying another cut in December was not a “foregone conclusion”.
“Far from it”, he added.
Treasury yields and the dollar firmed heading into Thursday’s trading day, with markets now seeing only a 70% chance of another Fed cut by year-end. Wall Street indexes stalled after the Fed move and futures remained subdued overnight.
The Bank of Japan, meanwhile, deferred any further interest rate rises for now – knocking the yen back to eight-month lows despite pressure from U.S. Treasury Secretary Scott Bessent earlier this week for the BOJ to keep on tightening.
In South Korea, President Donald Trump hailed his summit with Chinese counterpart Xi Jinping in Busan as “amazing” and gave it a 12 out of 10 rating. But markets seemed less impressed, initially at least.
The two sides laid out a 12-month agreement that removes the cliff edge of 100% U.S. tariffs next week, seeing Washington halve fentanyl-related tariffs on China to 10% in return for Beijing freeing up rare earth exports and pledging to buy more U.S. soya beans. No mention was made of allowing China to import Nvidia’s cutting-edge AI chip Blackwell, despite Trump indicating on Wednesday that it would be on the agenda.
China’s stocks and yuan fell back as readouts from the meeting unfolded.
Just before the summit, Trump threw another geopolitical curve ball by ordering the U.S. military to immediately resume testing nuclear weapons after a gap of 33 years.
Meantime, the market reaction to this week’s first sweep of megacap tech earnings was also something of a mixed bag.
With AI-related investments still booming despite ongoing fears of a bubble in valuations, Alphabet outshone Microsoft and Meta and its stock jumped 7% ahead of today’s bell on another beat – lifting its capex plan for the year to $91-93 billion.
Microsoft and Meta shares went the other direction, however, dropping 3% and 7% respectively overnight. Meta’s copybook was blotted by a hefty $16 billion tax charge and Microsoft’s forecast of rising spending seemed to unnerve those wary of the cost of sustaining the boom. An outage on Thursday in its Azure cloud computing platform didn’t help, even though it appears to have been resolved overnight.
Next up on the corporate diary are Apple and Amazon results after Thursday’s close.
Elsewhere, the European Central Bank is expected to leave its key interest rates unchanged at 2% today, with euro zone GDP growth for the third quarter coming in slightly ahead of forecasts thanks to an unexpected French beat. And after Wednesday’s election, the next Dutch government looks likely to exclude the far right after support surged for the centrist D66 party.
Sterling’s eye-catching slide to its lowest in more than two years against the euro is ostensibly on rising speculation of another Bank of England rate cut this year and possible income tax rises at next month’s budget. Prime Minister Keir Starmer rejected calls for a probe into finance minister Rachel Reeves’ failure to secure the correct paperwork for a house rental.
In today’s column, I discuss Treasury Secretary Bessent’s pressure on Japan to keep lifting interest rates and prevent yen volatility as a sign of how sensitive the Trump administration will be to any renewed dollar appreciation.
Today’s Market Minute
* U.S. President Donald Trump said on Thursday he had agreedwith President Xi Jinping to trim tariffs on China in exchangefor Beijing cracking down on the illicit fentanyl trade,resuming U.S. soybean purchases and keeping rare earths exportsflowing. * The Federal Reserve on Wednesday cut interest rates by aquarter of a percentage point, as expected. However, a policydivide within the U.S. central bank and a lack of federalgovernment data may put another interest rate cut out of reachthis year, the Fed Chair indicated. * The centrist D66 party made huge gains in Dutch electionslikely giving it the lead in the formation of the nextgovernment, as the party of far-right leader Geert Wilders lostsupport. * The U.S. labor market has been characterized as a ‘nohire, no fire’ landscape for much of the past year. But, writesROI markets columnist Jamie McGeever, ‘no hire, more fire’increasingly looks more accurate. * A new wave of Western sanctions on Russia’s oil industryhas roiled the diesel market, sending refining margins soaring,but global supplies are unlikely to be severely disrupted forlong. Read the latest from ROI energy columnist Ron Bousso.
Chart of the day
Of the three tech giants’ reporting overnight, investors seemed most impressed by Alphabet’s ability to balance its soaring expenses with strong cash flow. Alphabet’s capital expenditure of $23.95 billion in the September quarter was 49% of its cash generated from operations. The percentage for Meta, however, is 64.6%, with Microsoft even higher at 77.5%.
Today’s events to watch
* European Central Bank interest rate decision (9:15 AM EDT) and press conference
* Federal Reserve Vice Chair for Supervision Michelle Bowman and Dallas Fed President Lorie Logan
* U.S. corporate earnings: Apple, Amazon, Eli Lilly, Comcast, Coinbase, Mastercard, Fox, Merck, Bristol-Myers Squibb, Biogen, International Paper, Intercontinental Exchange, S&P Global, Gilead Sciences, Weyerhaeuser, Estee Lauder, Cigna, Kellanova, Kimberly-Clark, Edwards Lifesciences, Southern, Howmet, Altria, Dexcom, Ameriprise, Western Digital, Huntington Ingalls, Ingersoll Rand, First Solar, Stryker, Hershey, GoDaddy etc
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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.
(By Mike Dolan; Editing by Aidan Lewis)
