Futures on the S&P 500, Dow and NASDAQ 100 dropped this morning on increased uncertainty over the Fed path to lower interest rates, while Europe's STOXX 600 climbed with the euro as bank shares rallied on the outlook interest rates may not fall by as much as previously expected.
U.S. contracts were showing a different behavior, posting an early dip that retested yesterday’s lows. SPX futures fell for seven out of 10 hours after investors realized the Fed may lack consensus to be as accommodative with the market as some hoped, even after the central bank implemented a widely-expected 0.25% rate cut on Wednesday.
In the earlier Asian session, most regional indices climbed, with Australia’s S&P/ASX 200 (+0.54%) outperforming. Hong Kong’s Hang Seng (-1.07%) was the only major index to close in the red, as civil unrest in the city continued.
The Chinese yuan dropped as traders weighed the odds of the People’s Bank of China lowering borrowing costs.
Meanwhile, the Bank of Japan maintained its key rate unchanged, bucking looser monetary policy from the Fed and the ECB.
The yen jumped after the central bank’s announcement, erasing yesterday’s losses, with the USD/JPY finding support by the 100 DMA. The currency's climb partly pared gains on the Nikkei 225, turning the equity index's session trading pattern into a shooting star, confirming the April highs’ resistance.
In yesterday’s U.S. session, stocks ended little changed after a divided Fed demonstrated a murky path to lower rates, with only one FOMC member seeking a bigger rate cut and two opposing any hike at all. Intraday, the S&P 500 recorded the worst drop in four weeks. Fed Chairman Jerome Powell, however, vowed to be vigilant against any signs of economic slowdown.
In bond markets, yields on 10-year Treasurys slipped for the fourth consecutive session. Technically, the yield is squeezed between the 100 and 50 DMAs upon nearing the downtrend line since November 2018, at the 2% key level.
Overall, lingering fears of a recession maintain pressure on yields.
Case in point, FedEx (NYSE:FDX) stock sank on Wednesday as the company slashed its profit outlook and missed earnings expectations, blaming slowing economic growth caused by the U.S.-China trade dispute. The group's shares plunged about 14% to less than 1% from the Aug. 27 low—which in turn marked the lowest price since June 2016. Mad Money host Jim Cramer characterized FedEx guidance as the “most dispiriting call about the economy I’ve heard in a very long time.”
Meanwhile, the Dollar Index pared half of yesterday’s gains.
The Australian dollar dropped for the second day after fresh figures showed the country’s unemployment rate ticked higher in August. Technically, the AUD/USD is within 1% of its Aug. 7 low, the lowest since March 2009.
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