Stocks Are Mixed as Euphoria Over Big Fed Cut Ebbs: Markets Wrap

(Bloomberg) — Stocks were mixed Friday, with declines in European equities and US futures contrasting with gains in Asia, as investors studied the trajectory for interest rates.

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The Bank of Japan was in focus after it kept rates unchanged, while indicating a path toward tightening as inflation accelerates. The yen fluctuated.

Europe’s Stoxx 600 slipped as Mercedes-Benz Group AG slumped 7.7% after cutting its financial forecast for the year. US equity futures edged lower after the S&P 500 notched its 39th record in 2024 and extended this year’s surge to about 20%. A gauge of Asian stocks climbed 0.8%.

The Federal Reserve’s bold 50-point rate cut this week has boosted confidence that it will be able to engineer a soft landing for the American economy. Projections from Fed policymakers reflect a potential further 1.5 percentage points of cuts by the end of next year.

“For all the optimism in markets right now, it’s clear that a few concerns still lie under the surface,” said Jim Reid, a strategist at Deutsche Bank AG. “In particular, futures are continuing to price in a more aggressive pace of cuts than was implied by the Fed’s dot plot on Wednesday, so investors think they might need to accelerate those rate cuts if downside risks materialize.”

Traders are also braced for a quarterly episode known as “triple witching” in which derivatives contracts tied to stocks, index options and futures will mature — potentially amplifying market moves. About $5.1 trillion are set to expire Friday, according to an estimate from derivatives analytical firm Asym 500.

The options expiry coincides with the rebalancing of benchmark indexes. The event has a reputation for causing sudden price moves as contracts disappear and traders roll over their existing positions or start new ones.

Treasury yields were little changed on Friday, while an index of dollar strength was locked in a narrow range. The pound gained after UK retail sales for August beat estimates, as consumers took advantage of sunny weather and summer discounts.

In Japan, the BOJ raised its assessment of consumer spending and reiterated that it expects price growth to be in line with its goal in the latter half of its projection period, an indication it remains on a path toward hiking rates. Data released earlier showed the nation’s key inflation gauge accelerated in August for a fourth consecutive month.

“We maintain our bullish conviction on the yen as the pickup in wage growth and uptick in inflation should keep the December hike live,” said Alex Loo, a macro strategist at TD Securities in Singapore. “Yen could also prove to be an effective hedging tool for defensive markets as we head into US election uncertainty and rising geopolitical risks.”

In China, the country is considering removing some of the largest remaining curbs on home purchases after previous measures failed to revive a moribund housing market, according to people familiar with the matter. That pushed up a Bloomberg gauge of Chinese developers.

Meanwhile, the nation’s banks maintained their benchmark lending rates for September, as policymakers held off on further monetary stimulus while financial institutions struggle with record-low profit margins. The Securities Times reported on Friday that this week’s Fed rate cut has provided room for China to boost monetary and fiscal stimulus to support the economy.

In commodities, gold steadied near a record high while oil was on track for the biggest weekly advance since February after the US rate cut.

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