By Isla Binnie and Sruthi Shankar
NEW YORK (Reuters) – Wall Street slid from the previous session’s record highs and the dollar steadied on Friday as the market knuckled down to the start of a rate reducing cycle that began with a mid-week jumbo cut by the U.S. Federal Reserve.
With the long-awaited decision made, markets mulled the motivations for the move, which Fed Chair Jerome Powell indicated should be seen as safeguarding a resilient economy, rather than an emergency response to weaker jobs data.
All three major U.S. stock indexes posted early losses but have still set a course to log weekly gains thanks to all-time highs hit on Thursday as buyers piled in to riskier assets.
Fed funds futures have priced in about 72 bps of cuts by the end of this year and 195 bps of cuts by October 2025.
“What Chairman Powell said was that they’re carefully watching the labour market, and if it slows too much they’re prepared to act,” said Marija Veitmane, head of equity research at State Street Global Markets.
“Powell also said that he doesn’t see the labour market as inflationary – that’s a positive message for risky assets.”
The blue-chip Dow Jones Industrial Average fell 0.15%, to 41,963.50, the S&P 500 shed 0.34%, to 5,693.95 and the Nasdaq Composite fell 0.42%, to 17,938.72.
Some volatility is expected during the day, as options and futures linked to indexes and individual stocks are set to expire simultaneously, in an event called “triple witching” that falls on the third Friday of the last month of the quarter.
The MSCI index of world stocks drooped 0.32%, after Thursday’s 1.6% jump took it to a record high. It was still headed for a weekly rise.
Utilities outperformed, with the boosted by Constellation Energy whose stock soared more than 14% on news of a deal with Microsoft to reopen part of a mothballed nuclear plant to power artificial intelligence projects.
U.S. OUTLOOK ECHOES ABROAD
Rounding off a busy week for monetary policy, the Bank of Japan left rates unchanged. Markets had been expecting rates to remain steady, but Governor Kazuo Ueda tempered expectations around imminent rate hikes.
The U.S. economic outlook also rippled into the Bank of Japan’s meeting. Ueda said uncertainty around the world’s largest economy and market volatility could impact its policy moves.
The yen eased after the meeting and was last seen 1.11% lower against the greenback at 144.22 per dollar. [FRX/]
The dollar climbed to a two-week high against the yen after Ueda’s remarks, and was last up 1.12% to 144.22.
The dollar index, which measures the greenback against a basket of currencies, steadied after suffering losses earlier in the week. It rose 0.26% to 100.93.
European stocks had fallen earlier from two-week highs, with automakers leading the slide after Mercedes-Benz cut a profit margin target, citing weakness in China. [.EU]
In China, the central bank kept its benchmark lending rates on hold, countering expectations for a move lower. Chinese blue chips edged up 0.2% but remained close to a seven-month low touched earlier in the week.
Downbeat data in recent days has raised hopes of aggressive stimulus to prop up the world’s second largest economy.
Sterling weakened 0.02% to $1.3282 after the Bank of England held rates steady on Thursday. Data on Friday showed British retail sales rose by a more than expected in August.
Commodities also held on to their weekly gains. Gold touched a record high at $2,614 an ounce.
Brent fell to $74.41 per barrel, down 0.63% on the day but still set to end the week higher. [O/R]
(Reporting by Stella Qiu and Sruthi Shankar; Editing by Sam Holmes, Gareth Jones, Alex Richardson and David Evans)
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