By Gregor Stuart Hunter
SINGAPORE (Reuters) – Global stock markets steadied on Thursday after the Federal Reserve cut interest rates but investors were circumspect after the world’s biggest central bank signalled a measured approach to further monetary policy easing.
U.S. equity futures advanced 0.3%, after a uneven session on Wall Street overnight, while shares in Korea and Taiwan led gains in Asia, both opening around 0.7% higher. Japan’s Nikkei 225 tacked on 0.3%.
The gains steadied MSCI’s broadest index of Asia-Pacific shares outside Japan, which edged 0.1% lower, as declines in Australian and New Zealand markets weighed on the wider benchmark.
Global stocks stumbled on Wednesday after hitting a record high in the wake of the Fed’s quarter point rate cut and indications it will 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 that the central bank does 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 the 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 favor of a larger 50-bp cut.
Currency markets were similarly indecisive.
The U.S. dollar index dropped to the lowest since February 2022 at 96.224 against a basket of major peers immediately after the rate decision, but sprang back to be higher on the day at 97.074.
The euro was steady at $1.1821 after a knee-jerk reaction to the Fed announcement saw it rise to the highest since June 2021 at $1.19185.
Sterling was flat at $1.3626 having briefly raced to the highest since July 2 at $1.3726 on Wednesday.
The Bank of England announces 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-bp 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.
In New Zealand, the S&P/NZX 50 dropped 0.6% after data showed a worse-than-expected economic contraction in the second quarter. The kiwi dollar sank 0.6% against the greenback.
Australia’s market fared no better, falling 0.8% 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.
In the bond market, the yield on benchmark 10-year Treasury notes ticked up to 4.0872% 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 3.5552%.
Gold prices rose 0.3% to $3670.19 per ounce, recovering from a dip after hitting a record high on Wednesday.
Oil prices were steady, with Brent crude last trading at $67.95 per barrel.
(Reporting by Gregor Stuart Hunter; Editing by Shri Navaratnam)
