the Fed’s jumbo rate cut; futures higher after stocks slide

Investing.com — The Federal Reserve is going big, rolling out a jumbo half-point interest rate cut and signaling more cuts could come this year. U.S. stock futures rose on Thursday after stocks ended the previous session lower following the announcement and a closely watched news conference with Fed Chairman Jerome Powell. The Bank of England is due to unveil its latest rate decision, followed by the Bank of Japan on Friday.

1. The Fed announces a very large interest rate cut and signals the start of a new easing cycle

The Federal Reserve cut interest rates by 50 basis points on Wednesday and indicated it would announce further cuts this year as the central bank begins an easing cycle to support the economy after a prolonged battle against rising inflation.

The Federal Open Market Committee, FOMC, cut its benchmark rate to a range of 4.75% to 5.0% after leaving borrowing costs at a more than two-decade high for more than a year . The decision was not unanimous, as Fed Governor Michelle Bowman preferred to cut rates by just 25 basis points.

It was the first cut since March 2020. The size of the cut, along with the updated “dot plot” of officials’ forecasts, indicated that policymakers may try to act quickly to stop any weakening in the economy after the period of high rates. .

At a news conference, Fed Chairman Jerome Powell played down concerns about a recession, pointing to resilient economic growth, low price growth and a “solid” labor market.

“I don’t see anything in the economy right now that suggests a recession is more likely,” Powell said. “(Economic) growth at a solid rate, inflation coming down, you see a labor market that’s still at very solid levels, so I don’t really see that (recession risk) right now.”

2. Futures look higher

U.S. stock futures rose on Thursday after ending lower in choppy trading in the previous session following the Fed announcement.

By 03:31 ET (0731 GMT), the contract had gained 62 points, or 1.1 percent, added 323 points, or 1.7 percent, and advanced 267 points, or 0.6 percent.

On Wednesday, Wall Street stocks rose after the Fed unveiled a half-point interest rate cut and peaked as Powell held the news conference. The benchmark index briefly broke an intraday record, but eventually finished lower by 16 points, or 0.3%. The technology industry also fell 55 points, or 0.3 percent, and the top 30 stocks fell 103 points, or 0.3 percent.

“What the bears were talking about (was that) the Fed’s interest rate cut was widely expected and largely priced into stocks,” analysts at Vital Knowledge said in a note to clients.

Elsewhere, the spread between the 2-year and 10-year U.S. Treasury yields, a gauge of future growth forecasts, rose to its highest level since 2022, while — which rates the greenback against a basket of currency pairs — – it was flat.

“Unless the jobs numbers are much stronger than expected and force the Fed to take a more cautious easing path, the dollar looks set to remain weak heading into the US election,” analysts at ING said in a note note.

3. Bank of England decision under consideration, Bank of Japan before

Traders were now turning their attention to the Bank of England, with the central bank due to make its latest policy decision on Thursday.

With the BoE expected to keep its key rate unchanged at 5.0% after a cut in August, policymakers may reiterate their “cautious” stance against easing too quickly or too early.

UK consumer prices were 2.2% on an annual basis last month, close to the bank’s medium-term target, but services inflation is running hot at 5.6% annually.

Beyond Britain, the Bank of Japan is tipped to keep interest rates unchanged at the end of a two-day meeting on Friday, although officials may still present a dovish outlook on expectations of higher inflation.

4. Nurses gold losses overnight

Gold prices were slightly higher in early European trade on Thursday, although the yellow metal fueled overnight losses despite some optimism about the Fed’s jumbo interest rate cut.

Powell signaled the prospect of more interest rate cuts, with markets now pricing rate cuts totaling 125 basis points by the end of the year. But he also said the Fed has no plans to return to an ultra-low rate environment as seen during the COVID-19 pandemic, adding that the so-called neutral rate — which neither helps nor hinders the broader activity — will be much greater than previously seen.

His comments presented a higher outlook for medium- and long-term rates, dampening some of the recent bullish sentiment around gold, which had hit record highs in the run-up to the Fed’s decision.

However, the prospect of lower rates still bodes well for non-yielding assets such as gold, as it lowers the opportunity cost of investing in bullion.

Meanwhile, gains in , a speculative asset that saw a bull ride in 2021 fueled by ultra-low interest rates, were limited.

5. Gross earnings

Crude oil prices rose after a significant interest rate cut by the U.S. central bank raised hopes for a pick-up in economic activity in the world’s biggest consumer, but concerns about global demand persisted.

By 3:30 a.m. ET, the contract had gained 0.9% to $74.34 a barrel, while WTI futures traded 1.0% higher at $70.58 a barrel. barrel.

US government data released on Wednesday showed a larger-than-expected drawdown of 1.63 million barrels. While the figure was well above expectations for a 0.2mb draw, it was also accompanied by a build in distillate and gasoline stocks.