Fed Cuts 25bps while BOJ holds steady

The Federal Reserve cut interest rates by a quarter point taking the upper bound of the Fed funds rate to 4%, but Fed Chair Jay Powell emphasized a December cut is not a foregone conclusion, stating “Far from it, policy is not on a preset course”. The decision drew rare dual-direction dissents: Kansas City Fed President Jeffrey Schmid opposed any cut citing ongoing inflation, while Fed Governor Stephen Miran advocated for a deeper half-point reduction. This marked only the third time since 1990 that policymakers dissented in opposite directions, signaling deep divisions about the economy’s trajectory. Despite the 10-2 vote, Powell acknowledged “strongly differing views” about December’s path forward. Markets had priced in an 87% chance of another quarter-point cut in December before Powell’s remarks. The odds fell to 74% afterward. The Fed also halted its balance sheet reduction starting December, reinvesting all maturing Treasury proceeds and USD 35bn monthly from mortgage-backed securities, citing money market funding pressures. Powell warned the ongoing government shutdown has left the Fed without crucial economic data, forcing it to “slow down” like “driving in the fog.” The FOMC cited rising employment risks as major companies including Amazon, UPS, Target, and General Motors announced thousands of job cuts.

South Korea and the US have reached a trade deal where Seoul will invest USD 350bn in exchange for reduced auto tariffs. The agreement lowers US duties on South Korean car imports from 25% to 15%, matching rates for Japanese competitors. The investment includes USD 200bn in cash (capped at USD 20bn annually with shared profits) and USD 150bn through a shipbuilding partnership. The deal addresses a critical issue for South Korea, as vehicles represent roughly one-third of its US exports. Additionally, Washington agreed to ensure semiconductor tariffs won’t disadvantage South Korean chip manufacturers compared to Taiwanese rivals.

The Bank of Japan held interest rates at 0.5% as expected, while two board members dissented, proposing an increase to 0.75%. In its quarterly outlook, the BOJ slightly raised its economic growth forecast for fiscal 2025 and upgraded inflation projections for fiscal 2026. The bank expects underlying inflation to reach 2% in the latter half of its three-year projection period through March 2027. The BOJ reiterated its commitment to continue raising rates if economic conditions develop as anticipated, maintaining that inflation risks remain balanced.

Today’s Economic Data and Events

• 14:00 Eurozone GDP SA YoY 3Q Forecast 1.2%
• 14:00 Eurozone unemployment rate Sep Forecast: 6%
• 16:30 USD GDP Annualized QoQ 3Q Forecast: 3.0%

Fixed Income

US Treasuries rose 10bps points on the back of the Fed meeting. The 2yr yield rose 10bps to 3.5980% and the 10yr yield grew 10bps to 4.0757%.

FX

The dollar spot index surged 0.56% to 99.22. EURUSD declined 0.4% to 1.1601. USDGBP climbed lost 0.6% to 1.3194 while USDJPY declined 0.41% to 152.73.

In emerging markets, USDTRY closed flat at 41.9373. USDINR closed down 0.1% at 88.1975. USDEGP declined 0.1% to 47.31

Equities

The S&P 500 closed flat at 6,890, while the Dow Jones Industrial Average declined 0.16% to 47,6322. The Nasdaq Composite surged 0.55% to 23,637.46.

In Europe, The Eurostoxx 50 closed flat, the DAX declined 0.6%, the CAC 40 closed down 0.2% and the FTSE 100 surged 0.6%.

In local markets, the DFM closed up 0.3% while ADX closed flat. Saudia’s Tadawul closed up 0.7%.

Commodities

Oil prices climbed on Wednesday. Brent futures rose 0.8% to reach USD 64.92/b and WTI dropped grew 0.6% to USD 60.48/b.

Gold prices closed down for the fourth consecutive day declining 0.6% to close at USD 3,930.07/troy oz, while silver surged 1.1% to USD 47.55/troy oz.