Contracts for the Nasdaq 100 rose 1.1% and those for the S&P 500 advanced 0.8% as shares of Microsoft Corp. and Meta Platforms Inc. surged in after-hours trading. Asian shares edged lower. South Korean equities fluctuated after the country reached a trade deal with the US. The Nikkei-225 rose 0.3% ahead of a rate decision by the Bank of Japan later Thursday.
Copper edged higher in London after President Donald Trump shocked the market by exempting refined metal from US import tariffs.
The S&P 500 fell 0.1% and Treasury 10-year yields rose around five basis points Wednesday. While the concerted pullback in stocks and bonds looked mild, it marked the worst Fed day since December. The dollar strengthened 0.8% as Fed Chair Jerome Powell said no decision had been made about easing policy in September. The US labor market “looks solid,” he said, while inflation remains above target.
The muted equity market response to the Fed hold was a sign investors have tempered expectations for imminent rate cuts. Instead, they’re leaning on resilient growth, an AI-fueled earnings boom, and the belief that tariffs will only trigger manageable goods inflation while leaving services inflation contained.
“To get that rate cut, the Fed will need to gain confidence that either inflation increases will be one-off and muted, or that inflation will continue to trend lower in the months and quarters ahead,” said Bret Kenwell at eToro.On South Korea, Trump said he reached a trade deal that would impose a 15% tariff on its exports to the US and see Seoul agree to $350 billion in US investments.Trump also said he would impose a 25% tariff on India’s exports to the US starting Friday and threatened an additional penalty over the country’s energy purchases from Russia. The rupee declined in offshore trading while contracts for the Nifty 50 erased their gains to decline as much as 0.5%.
Elsewhere in Asia, investors will be focused on a Bank of Japan rate decision.
Meanwhile, the Federal Open Market Committee voted 9-2 on Wednesday to hold the benchmark federal funds rate in a range of 4.25%-4.5%, as they have at each of their meetings this year. Governors Christopher Waller and Michelle Bowman voted against the decision in favor of a quarter-point cut.
Money markets pared bets on rate reductions this year and traders now see a less than 50% chance of a cut in September. The odds for a reduction in October dropped to around 85%, whereas they were fully priced-in before Powell began to speak.
“The next two months’ data will be pivotal and we see a path to a resumption of the Fed’s easing cycle in the autumn should tariff inflation prove more modest than expected or the labor market show signs of weakness,” said Ashish Shah at Goldman Sachs Asset Management.
In other economic data, US companies stepped up hiring in July, though the pace remained consistent with weaker labor demand. Private-sector payrolls increased by 104,000, according to ADP Research data. The median economist estimate called for a 76,000 gain.
The July employment report due Friday from the Bureau of Labor Statistics, which includes government positions, is expected to show job growth moderated and unemployment rose.
Inflation-adjusted gross domestic product increased an annualized 3% in the second quarter, according to preliminary government data out Wednesday. As solid as the pace was, economic growth averaged 1.25% in the first half, a percentage point cooler than the pace for 2024.
