Major European equity markets fell Thursday after corporate earnings reports, while upcoming U.S. policy easing boosted global bonds.
The Federal Reserve kept rates steady but hinted at a September cut. Meanwhile, traders bet on a possible Bank of England cut.
Major European markets fell: STOXX 600 down 0.6%, while Germany’s DAX and France’s CAC 40 dropped nearly 1.3%.
Britain’s FTSE 100 fell 0.3% ahead of the BoE’s 1100 GMT interest rate decision.
“The fact that some heavyweights are cutting guidance does not bode well for the future and could explain why European markets are underperforming,” said Stephane Ekolo, equities strategist at TFS Derivatives.
“Disappointing set of results, slowing growth for industrials, Chinese consumers no longer there to rescue demand and a possible resurgence of inflation. You have a not so pleasant cocktail.”
Nasdaq futures rose 0.1% as Meta Platforms surged 7% pre-market on strong earnings; the index rose 3%, S&P 500 up 1.6%.
U.S. tech stocks rebounded; meanwhile, Nvidia surged 13% Wednesday, adding roughly $330 billion in market value.
Tech giants Apple and Amazon.com will report their earnings later on Thursday.
MSCI’s Asia-Pacific index rose 0.4% after July’s flat end; meanwhile, MSCI IT index gained 1.7%, and Taiwan’s shares surged 2%.
However, Japan’s Nikkei tumbled 2.5% as the yen’s sharp rise clouded the exporters’ outlook.
The Japanese yen surged to 148.51 per dollar, its highest since March, after the Bank of Japan raised interest rates again.
Market Reactions to Fed Policy Outlook and Global Developments
Following Fed Chair Jerome Powell’s mention of a “real discussion” on cuts, focus shifted to the monetary policy outlook.
The central bank noted that, similarly, risks to employment now match those of rising prices.
Thus, markets, betting on a September cut, now see a 10% chance of a 50 basis points reduction and 72 basis points for 2024.
“The statement was notable in that they removed the tightening bias and replaced it with a more neutral bias,” said Jan von Gerich, chief analyst at Nordea.
“It’s early but the fact we haven’t really seen the rally continue suggests that markets may be trying to catch some breath before tomorrow’s payrolls report.”
Treasuries gained further, with the 10-year yield falling 5 bps to 4.0564%, after a 11 bps drop yesterday.
After a 0.4% drop on Wednesday, the dollar index rebounded 0.3%, while the euro and sterling fell by 0.4% and 0.5%, respectively.
In commodity markets, oil prices surged further as the killing of a Hamas leader in Iran heightened the risk of broader conflict.
Brent crude futures climbed 0.9% to $81.57 per barrel; similarly, U.S. West Texas Intermediate rose 1% to $78.65.
Brent increased roughly 2.3%, while US crude rose more than 4% in the prior day.
Gold was down 0.5% at $2,435 per ounce.
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