Global Stock Markets Mixed As Investors Assess Interest Rate Outlook

Stocks exhibited mixed performance on Friday, with European equities and US futures declining while Asian markets posted gains, as investors closely monitored interest rate trends. The Bank of Japan drew attention after maintaining its interest rates, leading to a weakening of the yen. Governor Kazuo Ueda indicated a cautious stance, suggesting minimal urgency for rate hikes and noting a reduction in inflationary pressures.

In Europe, the Stoxx 600 index fell by 0.5%, with shares of Mercedes-Benz Group AG plummeting by as much as 8.4% following a revised financial forecast. Meanwhile, US equity futures dipped slightly after the S&P 500 achieved its 39th record this year, extending a remarkable 20% surge in 2024. Conversely, a gauge of Asian stocks increased by 0.6%.

This week’s bold 50-basis-point rate cut by the Federal Reserve has instilled confidence that the US economy may achieve a soft landing. Projections from Fed officials indicate the possibility of an additional 1.5 percentage points in rate cuts by the end of 2025.

Jim Reid, a strategist at Deutsche Bank AG, commented, “Despite the current market optimism, underlying concerns persist. Specifically, futures continue to price in a more aggressive pace of cuts than suggested by the Fed’s dot plot, indicating that investors anticipate a need for accelerated rate cuts if downside risks materialize.”

Traders are also preparing for “triple witching,” a quarterly event involving the expiration of stock derivatives, index options, and futures, which may heighten market volatility. An estimated $5.1 trillion in contracts are set to expire on Friday, according to derivatives analysis firm Asym 500. This expiry coincides with the rebalancing of benchmark indexes, historically known to trigger sudden price movements.

On the economic front, Treasury yields remained stable, while the dollar strengthened. The British pound rose after UK retail sales for August exceeded expectations, buoyed by favorable weather and seasonal discounts.

In China, officials are contemplating the removal of major restrictions on home purchases, following earlier measures that failed to revitalize the sluggish housing market, which resulted in a rise in a Bloomberg index of Chinese developers. Additionally, Chinese banks held steady on their benchmark lending rates for September, refraining from further monetary stimulus amidst record-low profit margins in the banking sector. Reports suggest that the recent Fed rate cut may provide China with leeway to enhance monetary and fiscal support for its economy.

In commodities, gold prices reached a new high as the Fed’s aggressive policy easing continues to impact markets, while oil is poised for its most significant weekly gain since February.