By Gregor Stuart Hunter
SINGAPORE (Reuters) – Global stock markets were choppy on Thursday after the Federal Reserve delivered its first rate cut this year but signalled a measured approach to further monetary policy easing, leaving investors in doubt about the pace of future moves.
MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.1% as declines in Australian and New Zealand markets weighed on the wider benchmark, while Chinese stocks veered between gains and losses.
There were signs of strength in some markets, however, as U.S. equity futures advanced 0.4% after a uneven session on Wall Street overnight, while shares in South Korea jumped 0.8% and those in Taiwan rallied 0.4%. Japan’s Nikkei 225 tacked on 1%.
Global stocks stumbled on Wednesday after hitting a record high in the wake of the Fed’s quarter-point rate cut and indications it would steadily lower borrowing costs for the rest of this year.
However, in post-meeting comments, Fed Chair Jerome Powell tempered the more aggressive easing expectations in markets, saying Wednesday’s move was a risk-management cut and the central bank did not need to move quickly on rates.
“All told, we’d describe the decision and tone of the press conference as balanced and restrained, and not at all dovish,” ANZ analysts said in a note.
“Powell’s focus on stronger U.S. GDP forecasts and still elevated inflation projections seemed to create doubt in investors’ minds.”
Those doubts fed into U.S. trading overnight, with the S&P 500 and the Nasdaq Composite closing down. Only new Governor Stephen Miran, who joined the Fed on Tuesday, dissented in favour of a larger 50-basis point cut.
Currency markets were similarly indecisive.
The U.S. dollar dropped to the lowest since February 2022 at 96.224 against a basket of major peers immediately after the rate decision, but sprang back 0.1% higher on Thursday to 97.089.
The euro was steady at $1.181 after a knee-jerk reaction to the Fed announcement saw it rise to the highest since June 2021 at $1.19185.
The Chinese yuan traded flat at 7.103 after China’s central bank left the borrowing cost of its seven-day reverse repurchase agreements unchanged on Thursday, declining to follow the Fed.
Sterling was down 0.1% at $1.3621, having briefly raced to the highest since July 2 at $1.3726 on Wednesday.
The Bank of England will announce its own policy decision later on Thursday, and is widely anticipated to keep rates at 4%.
Traders are pricing in a 87.7% chance of another 25-bp cut at the Fed’s next meeting in October, compared to a 74.3% probability a day earlier, according to the CME Group’s FedWatch tool.
“The Fed is still signalling more rate cuts, but at the same time still sees okay growth, which is a positive combination for share markets,” said Shane Oliver, chief economist and head of investment strategy at AMP in Sydney. “I do think the gains will be a bit limited though, as markets have already had a big rally in anticipation of the Fed cutting and so are due a pause or near-term correction,” he added.
The Bank of Canada also reduced its key policy rate by 25 bps to a three-year low of 2.5% on Wednesday, the first cut in six months, and said it would be ready to cut again if risks to the economy increased in coming months.
GROWTH CONCERNS
In New Zealand, the S&P/NZX 50 dropped 0.9% after data showed a worse-than-expected economic contraction in the second quarter. The kiwi dollar sank 0.7% against the greenback.
Australia’s market fared little better, falling 0.6% led by a decline of as much as 13.6% in gas producer Santos shares after a consortium led by Abu Dhabi’s ADNOC scrapped its $18.7 billion bid for the company, saying commercial terms could not be agreed.
The Australian dollar slipped 0.2%, edging away from an almost one-year high reached on Wednesday, after the release of weaker-than-expected labour market data for August, with employment unexpectedly falling as full-time positions dropped back after a sharp rise the previous month. The jobless rate held steady at 4.2%.
The data may create some weakness in the Australian dollar, which had recently strengthened on hawkish comments from the Reserve Bank of Australia, said Kerry Craig, global market strategist at J.P. Morgan Asset Management in Melbourne. But he said the bank still expected a rate cut in November.
Bond markets rallied after a pullback on Wednesday, with the yield on benchmark 10-year Treasury notes sliding to 4.0718% compared with its U.S. close of 4.076% on Wednesday. The two-year yield, which rises with traders’ expectations of higher Fed funds rates, rose a touch to 3.5385%.
Gold prices edged up 0.1% to $3662.33 per ounce, recovering from a dip after hitting a record high on Wednesday.
Oil prices declined, with Brent crude last down 0.5% at $67.62 per barrel.
(Reporting by Gregor Stuart Hunter; Editing by Shri Navaratnam and Jamie Freed)
