SINGAPORE: Global stock markets were volatile on Thursday after the Federal Reserve implemented its first interest rate cut of the year but signaled a cautious approach to further easing, leaving investors uncertain about the pace of future policy moves.
Asian shares were mixed, with Australian and New Zealand markets dragging the regional benchmark lower by 0.3%, while Chinese stocks fluctuated. Meanwhile, US equity futures rebounded 0.4% from overnight losses, and stocks in South Korea, Taiwan, and Japan posted gains of over 1%.
Global equities had stumbled on Wednesday despite hitting record highs following the Fed's quarter-point rate cut. However, Fed Chair Jerome Powell described the move as a “risk-management” cut, indicating no rush for further reductions.
"Resuming a rate cut cycle at this stage is fraught with risks," said Taimur Baig, chief economist at DBS. "Powell conceded that it is not obvious what to do at this juncture."
US stocks closed lower, and only newly appointed Fed Governor Stephen Miran dissented, favoring a larger 50-basis-point cut.
Currency markets were also unsettled. The US dollar dropped to its lowest level since February 2022 before rebounding 0.3% on Thursday. The euro fell 0.2% to $1.1795, after briefly touching its highest level since June 2021. The Chinese yuan edged up 0.1% after China’s central bank kept its short-term lending rate steady, opting not to mirror the Fed’s move. Sterling slipped 0.2% to $1.3606 ahead of the Bank of England’s policy decision, where rates are expected to be held at 4%.
Market participants are now pricing in an 87.7% chance of another 25-point cut at the Fed's October meeting, up from 74.3% a day earlier.
"The Fed is still signaling more rate cuts, but at the same time sees okay growth — a positive combination for equities," said Shane Oliver, chief economist at AMP. "Still, gains may be limited after recent rallies."
Elsewhere, the Bank of Canada also cut rates by 25 basis points to 2.5%, the first in six months.
In New Zealand, the stock market dropped 0.8% after data showed a deeper-than-expected economic contraction in Q2. The kiwi fell 0.9% against the US dollar. Australia’s market slipped 0.7%, led by a 13.6% fall in Santos shares after an $18.7 billion takeover bid collapsed. The Australian dollar declined 0.4% following weaker labor data.
Bond yields fell, with the US 10-year yield easing to 4.064%. Gold slipped 0.2% to $3,653.64 an ounce, and Brent crude dropped 0.4% to $67.67 per barrel. — Reuters
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