US equity futures rise as Fed cut boosts sentiment: markets wrap

Japan’s Topix and Nikkei 225 indexes rallied after the yen slumped over 1% against the dollar as traders weighed the outlook for yield differentials between Japan and the US. The MSCI gauge of regional equities climbed by the most in a week, while US stock futures advanced after the S&P 500 initially touched a record before closing 0.3% lower. 

The Fed’s move is reinforcing expectations that the US economy will avoid a downturn, and fueled bets that policy makers won’t be in a rush to deliver further easing — a stance that’s likely to underpin the dollar in the coming days. An overwhelming majority in a survey of Bloomberg Terminal subscribers expects a soft landing for the world’s largest economy, with 75% forecasting that it will avoid a technical recession by the end of next year.

“The Fed’s jumbo rate cut shows a clear intention of the Fed to support the US economy and aim for a ‘soft landing,’” Nomura Holdings Inc. strategists including Chetan Seth wrote in a note. “So long as the US manages to avoid a recession in the months ahead, the Fed preemptively cutting rates should be generally supportive of stocks.

The Fed’s first cut in more than four years was accompanied by projections indicating an additional 50 basis points of cuts across the remaining two policy meetings this year. While Fed Chair Jerome Powell cautioned against assuming big rate cuts would continue, the reduction means regional central banks can also start to ease without worrying about exchange rate pressures.

Bank of Korea Governor Rhee Chang-yong said Thursday the Fed’s cuts reduced pressure on the foreign exchange market and allowed the central bank to focus on domestic factors in setting policy.

An index of dollar strength steadied after a two-day gain, while the yen weakened to trade near 143 per greenback. Treasury 10-year yields rose, with their New Zealand and Australian counterparts echoing the move.

“The yen’s decline has been broadened by rising US long-term interest rates on the view that there is no rush to cut rates in the future, as well as by yen sales by domestic importers,” said Keiichi Iguchi, a senior strategist at Resona Holdings Inc.

Over in South Korea, shares of SK Hynix Inc. plunged, leading peers lower, after Morgan Stanley cut its rating on the memory chipmaker two notches on its fading pricing power.

In Asia, the Hong Kong Monetary Authority lowered its base interest rate for the first time since 2020 following the Fed’s cut, while New Zealand’s economy shrank in the second quarter. Data set for release in the region includes unemployment for Hong Kong, trade figures for Malaysia and an interest rate decision in Taiwan.

Elsewhere, the Bank of England is likely to refrain for cutting rates for a second consecutive meeting.

Fed Cut Positive for Asian Stocks, Risk Currencies, Analysts Say

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

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.

Gold nudged higher following a tumultuous session in which it touched a record high after the Fed rate cut. Oil declined as signs of weak US demand added to bearish headwinds, offsetting the Fed’s rate cut and escalating tensions in the Middle East.