Global markets experienced volatility during Thursday’s trading session as U.S. stocks closed with a mixed performance due to the Federal Reserve’s decision to postpone interest rate cuts. Any optimism for a string of interest rate reductions in 2024 has quickly faded as the economy and inflation show unexpected resilience.
U.S. shares were poised for an upward trajectory, with the futures for the S&P 500 showing a strong surge of 0.5% and the Dow Jones Industrial Average futures indicating a 0.4% increase.
Markets all over the world react to Fed rates
European markets started the day with a mix of gains and losses, as investors braced themselves for a flurry of corporate earnings announcements. In early trading, London’s FTSE 100 rose by 0.4% to reach 8,155.28. Germany’s DAX saw a slight decrease of less than 0.1% to 17,925.06, while the CAC 40 in Paris experienced a 0.7% decline to 7,926.97.
The Nikkei 225 index in Tokyo experienced a slight decline of 0.1% and ended the day at 38,236.07. As per the announcement yesterday, the Committee aims to attain full employment and maintain a stable inflation rate of 2 percent in the long term.
Additionally, the Fed Committee believes that the risks of achieving its employment and inflation goals have become more balanced over the past year. The economic outlook is filled with uncertainty, and the Committee is closely monitoring inflation risks. The Fed added that:
In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.
Fed
Markets in Asia
The Japanese yen experienced a significant surge of up to 2% during the early hours of Asia on Thursday. This surge was fueled by speculation surrounding the possibility of Japanese authorities engaging in another round of yen-buying intervention.
Additionally, the weakening of the U.S. dollar following the Federal Reserve meeting also contributed to this surge. Afterwards, the yen changed direction and nullified its earlier gains. The dollar had risen to 155.44 yen, compared to its previous rate of 154.91 yen.
The Kospi in South Korea experienced a 0.3% decline, settling at 2,683.65. This drop came after the release of official data indicating a 2.9% year-on-year increase in consumer prices for April, which was a slower rate compared to March.
The Hang Seng index in Hong Kong saw a 2.4% increase, reaching 18,187.56. Several markets in China were closed for the Labor Day holiday. Meanwhile, Australia’s S&P/ASX 200 saw a modest 0.2% increase, reaching 7,587.00.
On Wednesday, the S&P 500 experienced a 0.3% decline, closing at 5,018.39. This drop came after the Federal Reserve decided to maintain its main interest rate at its highest level since 2001, which was in line with market expectations. The index experienced a significant rally of 1.2% during the afternoon, only to relinquish all of its gains by the end of the trading session.
The Dow Jones Industrial Average increased by 0.2% to reach 37,903.29, while the Nasdaq composite experienced a 0.3% decline, closing at 15,605.48.
Asian crypto markets’ performance
In recent months, inflation has shown a lack of further progress toward our 2% objective, as Federal Reserve Chair Jerome Powell pointed out. This has caused stock prices to decline and dashed traders’ hopes for imminent cuts in interest rates.
He also mentioned that it may take more time than initially anticipated to gain enough confidence to reduce interest rates. This action would help alleviate the strain on the economy and stabilize investment prices.
The price of bitcoin (BTC) has experienced a modest rebound in the minutes following the news, although it continues to face downward pressure. It is currently down over 4% for the session, trading at $58,000.
Furthermore, alongside the rate news, the FOMC revealed its decision to decrease the reduction of Treasuries held on its balance sheet, known as quantitative tightening (QT), from $60 billion per month to a more modest $25 billion per month. Assuming all other factors remain constant, the move is expected to increase risk appetite and drive up asset prices.
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