The Thursday Market Minute

  • Global stocks mixed, with upside action in Europe, following key central bank decisions in the U.S. and Japan.
  • Bank of Japan punts easing decision into October, but notes eagerness to ease after keeping key rates unchanged. 
  • Fed rate decision, as well as near-term projections, puzzles markets and draws ire from President Donald Trump.
  • NY Fed runs third repo operation in as many days, injecting $75 billion in cash even as the rate on overnight excess reserves is cut by 30 basis points.
  • Oil prices edge higher after stocks at the U.S. delivery hub in Cushing, Oklahoma fall to the lowest level in nearly a year and Trump orders "substantial" sanctions on Iran.
  • Wall Street futures suggest modest opening bell gains for the the Dow after fewer-than-expected weekly jobless claims data and Philly Fed index data at 8:30 am Eastern time.

Market Snapshot

Global stocks traded mixed Thursday, with U.S. equity futures indicating modest declines, as investors picked through two major interest rate decisions from major central banks, while preparing for a third later today, while keeping a keen eye on developments in Wall Street's overnight lending markets. 

The Bank of Japan said Thursday it would "re-examine economic and price developments at its next policy meeting" after leaving its key target rates unchanged today in Tokyo, less than 24 hours after Federal Reserve Chairman Jerome Powell cut U.S. rates for the second time this year -- but only the second since 2008 -- to deliver what he called "insurance against ongoing risks" to the world's biggest economy.

Fed Governors voted 7-3 in favor of the 25 basis point rate cut, which takes the target range to 1.75% to 2%, with two members voting against any reduction and one member -- St. Louis Fed President James Bullard -- advocating for a larger 50 basis point easing.

"We are going to be highly data-dependent," Powell told reporters in Washington following the Fed's rate decision. "We are not on a pre-set course, we are going to be making decisions meeting by meeting."

However, with projections from the 17 members of the Fed's board -- not all of whom vote during regular policy meetings -- indicating a broad mix of outcomes over the next few months, markets were left confused as to when, and indeed if, the Fed would be prepared to lower rates again.

U.S. equity futures suggest modest declines on Wall Street Thursday, after eking out meager gains following the Fed decision last night, with contracts tied to the Dow Jones Industrial Average suggesting a 42 point gain and those linked to the S&P 500 guiding to a 6 point pullback for the broader benchmark.

Microsoft (MSFT) - Get Report shares were an early mover of note, rising 1.4% in pre-market trading, and adding 13 points to the Dow, after the tech giant boosted its dividend by 11%, to 51 cents per share, and authorized a $40 billion share buyback plan.

European stocks were stronger in early afternoon trading in Frankfurt, with the Stoxx 600 rising 0.44% even as the euro bumped higher to 1.1064 against the U.S. dollar. In London, Britain's FTSE 100 gained 0.6% as the pound eased from seven-week highs against the greenback after the Bank of England kept its key lending rate unchanged at 0.75%.

The hawkish tone to the Fed move, however, kept the U.S. dollar index near seven-week highs last night, before retracing gains in the early New York session, while benchmark 10-year U.S. Treasury bond yields edged higher, with 2-year notes trading at 1.758%, as investors parsed trough the Fed's economic projections, which made minor changes to the 2019 forecasts but kept their 2020 estimates unchanged.

"We're baffled by this, given the further intensification of the trade war since June, including the imposition of 15% tariffs on a broad range of consumer goods-with more to come in December," said Ian Shepherdson of Pantheon Economics. "We think growth will be significantly weaker than the Fed's 2% forecast-our estimate for Q4 next year is 1.5% - though we accept that uncertainty here is very high; perhaps unprecedented in the post-war era."

Another area of uncertainty for markets to navigate -- with potentially more immediate consequences -- centers on Wall Street's intrabank lending markets, which have seen worrying spikes in overnight borrowing costs this week as cash reserves continue to be drained by this year's tsunami of Treasury bond issuance. 

The NY Fed will conduct its third repo operation in as many days Thursday, offering another $75 billion in cash -- on top of the $150 billion it has put on the table over the past two days -- for eligible securities in an attempt to further ease funding conditions among it twenty four primary dealers. 

Overnight in Asia, Japan's Nikkei 225 gave back earlier gains following the BoJ rate announcement, but sill managed to close 0.38% higher even as the yen bumped to 107.86 against the dollar as Governor Haruhiko Kuroda punted the more difficult decisions into October. 

The region-wide MSCI ex-Japan benchmark, meanwhile, slipped 0.55% into the close of trading, lead by a 1.2% decline in Hong Kong's Hang Seng index. 

Global oil prices were back on the rise Thursday, although Brent crude was still notably lower than where it traded in the immediate aftermath of Saturday's drone attacks on the Abqaiq and Khurais oil facilities in Saudi Arabia.

The gains followed multiple media reports that Saudi Arabia has asked neighboring Iraq for as much as 20 million barrels of crude to support domestic refineries. The Energy Department estimating a decline in crude stocks at the Cushing, Oklahoma delivery hub, which fell to the lowest in nearly a year, and President Donald Trump's ordering of "substantial" U.S. sanctions on Iran for its involvement in the Saudi attacks yesterday, added to upward oil price pressures in early European trading.

Brent crude contracts for November delivery were seen $1.65 higher from their Wednesday close in New York at $65.25 per barrel while WTI contracts for the same month were marked $1.20 higher at $59.31 per barrel.