The Thursday Market Minute

  • Global stocks rally as both the Fed and the Bank of Japan cite slowing growth and downside risks in signalling near-term rate cuts.
  • Fed Chairman Powell defies Trump by holding rates steady, but primes market for multiple rate cuts between now and the end of the year.
  • European stocks book solid gains, but a stronger euro caps the upside as the dollar slumps to multi-week lows.
  • Global oil prices surge on reports of a U.S. military drone shot down by an Iranian missile near the Strait of Hormuz.
  • Wall Street futures suggest solid opening bell gains for the three major benchmarks, with the S&P 500 ready to test all-time highs, ahead of continuing jobless claims and the Philadelphia Fed business and employment data at 8:30 am Eastern time.

Market Snapshot

U.S. equity futures extended gains Thursday, pulling stock benchmarks higher all over the world, as investors reacted to signals of lower interest rates from the U.S. Federal Reserve and the prospect of a breakthrough in U.S.-China trade talks.

Fed Chairman Jerome Powell and his colleagues on the Open Markets Committee dropped a reference to be "patient" in monitoring incoming data in their post-decision statement, instead opting for a vow to act "as appropriate" in order to sustain what is only weeks away from the longest economic expansion in U.S. history.

"Seven weeks ago we had a great jobs report and came out of the last meeting feeling that the economy and our policy was in a good place," Powell told reporters in Washington "News about trade has been an important driver of sentiment in the interim."

U.S. equity futures suggest another session on solid gains on Wall Street Thursday, with contracts tied to the Dow Jones Industrial Average indicating a 260-point gain, a move that would take the 30-stock average past the 2019 high of 26,695.96 points.

Contracts linked to the S&P 500 guiding to a 31 point advance for the broader benchmark, a move that would take it to within a point of its all-time high from May 1. Nasdaq Composite futures are indicating a 113 point gain.

The U.S. dollar index, which tracks the greenback against a basket of six global currencies, slumped nearly 1% from yesterday's levels to trade at 96.61 during the overnight session, helping both the yen and the euro trade at multi-week highs. Benchmark 10-year U.S. Treasury note yields traded at 2.004%, the lowest since November 2016, while two-year notes slipped to 1.733% as investors priced in multiple rate cuts from the Fed between now and the end of the year.

"The big change in the accompanying statement is the dropping of the description of the Fed's stance as being "patient"," said ING's chief international economist James Knightley. "Instead, the Fed believes "uncertainties about the outlook have increased" which mean the FOMC will be "closely monitoring the implications of incoming information... and will act as appropriate to sustain the expansion"."

European stocks gained across the board in the opening hour of trading, although gains were capped by the stronger euro, with the Stoxx 600 benchmark rising 0.6% to 387.01 points and Germany's DAX performance index jumping 0.8% on not only the underpinning of rate cuts but also the recent agreement between President Donald Trump and Xi Jinping to meet at the G20 Summit in Osaka later this month.

Asia stocks were also firmly higher Thursday, with Japan's Nikkei 225 rising 0.6% following dovish rate decision from the Bank of Japan that noted "downside risks regarding overseas economies are big, so we must carefully watch how they affect Japan's corporate and household sentiment." The broader, region-wide MSCI Asia ex-Japan benchmark rose 1.72%. 

Global oil prices also surged again Thursday after reports that a U.S. military official said one of its drones patrolling the Strait of Hormuz, near the Gulf of Oman, was shot down by an Iranian missile. The drones had been put in place to ensure the security of shipping tankers in the region following a series of attacks last week that the State Department has linked directly to Tehran.

Brent crude contracts for August delivery, the global benchmark, were seen $1.73 higher from their Wednesday close in New York and changing hands at $63.55 per barrel in early European trading, while WTI contracts for July, which are more tightly linked to U.S. gas prices, were marked $1.90 higher at $55.87 per barrel.