European Futures Fall as Fed Sees Fewer Rate Cuts: Markets Wrap

(Bloomberg) — European stock futures mirrored losses in Asian equity markets after the Federal Reserve signaled fewer interest-rate cuts next year. The yen fell as the Bank of Japan left borrowing costs unchanged.

Euro Stoxx 50 contracts slid 1.6% and a gauge of Asian equities fell by as much as 1.7%, with benchmarks in Japan, Australia and South Korea all down. The losses reflected a slump in US shares in the previous session, with the S&P 500 suffering its biggest loss since 2001 for a Fed decision day. US stock futures were little changed. 

The yen extended declines past the key level of 155 versus the dollar following the BOJ decision and as Governor Kazuo Ueda said that he needs to watch momentum toward next spring wage negotiations to decide on policy. The move comes after the Fed cut rates by 25 basis points on Wednesday as expected, with the median policymaker now seeing just a half-percentage point of reductions next year, half of what was expected in September. 

“With the Fed more hawkish into 2025, it gives more room for BOJ to continue tightening next year, delivering another hike as early as January,” said Eugenia Victorino, head of Asia strategy at Skandinaviska Enskilda Banken. “Yet, USD/JPY is still dominated by the Fed outlook.” 

The 155 level for the dollar-yen pair is closely watched by strategists, who see a slide to this mark as a potential trigger for verbal intervention from Japanese authorities, and added pressure on the BOJ to hike rates. 

Read: Yen’s Outlook Worsens as BOJ Skips Rate Hike, Strategists Say

In the broader foreign-exchange market, the prospect of fewer US rate cuts supported the dollar and sent Asian currencies tumbling. India’s rupee slid to a record low while the South Korean won dropped to its weakest level in more than 15 years. Treasury yields edged higher after rising across the curve in the prior session. 

Back in the US, the last time the S&P 500 saw losses of the magnitude on Fed’s decision day was on Sept. 17, 2001, when the index fell nearly 5%. It dropped 12% on March 16, 2020, a day after the Fed’s emergency weekend meeting during the pandemic.

Fed Chair Jerome Powell said the central bank would be more cautious as it considers further adjustments to the policy rate, noting the Fed is committed to reaching its 2% inflation target. “We need to see progress on inflation,” he said. “We moved quickly to get to here but moving forward we are moving slower.”

China Support

Over in China, authorities ramped up support for the currency via its daily reference rate after the Fed’s caution over future rate cuts sent the offshore yuan to a fresh one-year low.

Contemporary Amperex Technology Co., the world’s top electric-vehicle battery maker, is considering a second listing in Hong Kong that could raise at least $5 billion, according to people familiar with the matter. Shares of Asian memory chipmakers and their suppliers fell after Micron Technology offered disappointing revenue forecast.

The Fed’s Wednesday cut precedes a busy run of central bank announcements from around the world. Rate decisions are expected Thursday in the Philippines, Taiwan, the UK, Norway, Sweden and Mexico. China’s one-year Medium-Term Lending Facility rate may be announced at any time through Dec. 24.

In commodities, oil fell as expectations for fewer Fed rate cuts boosted the dollar. Gold staged a partial recovery in Asian trading after tumbling more than 2% in the previous session. 

Key events this week: 

• UK BOE rate decision
• US revised GDP, Thursday
• Japan CPI, Friday
• China loan prime rates, Friday
• Eurozone consumer confidence, Friday
• US personal income, spending & PCE inflation, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures rose 0.1% as of 6:44 a.m. London time
• S&P/ASX 200 futures fell 0.1%
• Japan’s Topix fell 0.2%
• Hong Kong’s Hang Seng fell 0.6%
• The Shanghai Composite fell 0.4%
• Euro Stoxx 50 futures fell 1.5%
• Nasdaq 100 futures were little changed

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro rose 0.3% to $1.0384
• The Japanese yen fell 0.7% to 155.81 per dollar
• The offshore yuan fell 0.3% to 7.3128 per dollar
• The Australian dollar rose 0.1% to $0.6227
• The British pound rose 0.2% to $1.2594

Cryptocurrencies

• Bitcoin rose 0.3% to $101,267.76
• Ether fell 0.2% to $3,683.42

Bonds

• The yield on 10-year Treasuries was little changed at 4.52%
• Australia’s 10-year yield advanced 13 basis points to 4.41%

Commodities

• West Texas Intermediate crude fell 0.6% to $70.19 a barrel
• Spot gold rose 1.1% to $2,613.97 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Richard Henderson, Mia Glass and Winnie Hsu.

©2024 Bloomberg L.P.