United States
US markets delivered a muted response to the Federal Reserve’s latest policy decision, as the central bank voted 10–2 to leave interest rates unchanged in a range of 3.5% to 3.75%. The outcome reinforced the Fed’s message that it is in no hurry to resume easing, with policymakers signalling comfort in maintaining restrictive settings while economic growth remains solid and inflation continues to run above target.
Equity markets initially pushed higher following the announcement, with a tech-led rally briefly lifting the S&P 500 above the 7,000 level. However, gains faded as the session progressed, leaving the index little changed by the close. The Dow Jones Industrial Average also finished flat, while the Nasdaq 100 outperformed modestly, rising 0.3%. Smaller companies lagged the broader market, with the Russell 2000 falling 0.5%, reflecting a more cautious tone toward economically sensitive stocks.
The Fed acknowledged “clear improvement” in the economic outlook for the year ahead, while also noting that the labour market appears to be stabilising. At the same time, Chair Jerome Powell avoided offering any guidance on what might prompt the next rate cut, reinforcing the central bank’s data-dependent stance. Two governors dissented in favour of a quarter-point cut, highlighting an internal divide but underscoring that the broader committee remains aligned around patience.
Bond markets were largely unmoved by the decision. The yield on the 10-year US Treasury was unchanged at 4.25%, while the 2-year yield held at 3.58% and the 30-year yield remained steady at 4.86%. In currency markets, the US dollar strengthened, with the Bloomberg Dollar Spot Index rising 0.4%. The Japanese yen weakened sharply, falling almost 1% to 153.40 per dollar, after comments from the US Treasury Secretary indicated the US had not intervened to support the currency.
Earnings results continued to influence individual stocks. Meta Platforms jumped in late trading after issuing a bullish outlook, while Tesla rose after reporting profits that exceeded expectations. Microsoft shares declined as investors reacted to record capital spending, raising concerns about the timeframe for artificial intelligence investments to deliver returns. Results from companies including IBM, ServiceNow and Texas Instruments highlighted mixed conditions across the corporate landscape as earnings season progresses.
Europe
European equities moved lower as weak corporate earnings and lingering geopolitical uncertainty weighed on investor sentiment. The Stoxx Europe 600 Index fell 0.8% by the close, with declines broad-based across most major sectors.
Luxury stocks were a key drag on the market. LVMH shares slumped 7.9% after the company reported a larger-than-expected drop in fashion and leather goods sales, dampening hopes that the sector was on the verge of a sustained recovery. The weakness spilled over into other luxury names, reinforcing concerns about demand conditions in key consumer markets.
Financial stocks also came under pressure. Deutsche Bank shares fell 2% after reports that German authorities raided the lender’s offices as part of a money-laundering investigation linked to past dealings. The development added to an already cautious backdrop for European banks, which have faced increased scrutiny in recent weeks.
Energy stocks were among the better performers, supported by higher oil prices amid ongoing tensions involving the US and Iran. In the technology sector, ASML erased earlier gains after investors raised questions during a conference call about the company’s ability to expand capacity quickly enough to meet strong demand for semiconductor manufacturing tools.
European bond markets were mixed. Germany’s 10-year government bond yield declined two basis points to 2.86%, while Britain’s 10-year yield rose two basis points to 4.54%. In currency markets, the euro weakened 0.8% to USD 1.1945, while the British pound slipped 0.4% to USD 1.3799, reflecting softer risk appetite.
Australia
Australian markets remain firmly focused on inflation after a stronger-than-expected CPI reading lifted expectations of an interest rate rise by the Reserve Bank of Australia as early as next week. Australian share futures were pointing to a flat open, with ASX 200 futures indicating a four-point decline to 8,893 following the Fed’s overnight decision.
On Wednesday, the S&P/ASX 200 Index fell 0.1% to 8,933.9 as investors digested inflation data showing annual CPI rose to 3.8% in December, up from 3.4% in November and above market expectations. The trimmed mean inflation measure, closely watched by the RBA, increased 3.4% year-on-year, slightly above estimates and outside the central bank’s 2–3% target band.
The inflation data strengthened the case for tighter monetary policy, with money markets lifting the probability of a rate rise at the RBA’s February meeting to around 75%. The quarterly underlying inflation reading of 0.9% matched expectations, but the persistence of price pressures, particularly in housing and services, has raised concerns that inflation may take longer to return to target.
Rate-sensitive sectors weighed on the local market, particularly technology stocks, as investors reassessed the outlook for borrowing costs. Major banks delivered mixed performances, reflecting uncertainty around the timing and extent of any further policy tightening.
Energy stocks outperformed on the back of higher oil prices, while materials stocks also found support as gold prices surged to record highs. Gold miners were among the stronger performers, helping to offset weakness elsewhere across the index.
The Australian dollar strengthened to around US 70.2 cents, its highest level in almost three years, supported by rising interest-rate expectations and a shift in relative yield differentials.
Commodities and currencies
Commodity markets were notably strong overnight, led by a sharp rally in precious metals. Gold surged nearly 4% to USD 5,383 an ounce, extending its advance to fresh record highs as investors sought protection amid currency volatility and shifting interest-rate expectations.
Oil prices also moved higher. Brent crude rose 1.4% to USD 68.51 a barrel, while West Texas Intermediate crude gained 1.6% to USD 63.38 a barrel. Energy markets were supported by geopolitical tensions and weather-related disruptions that affected production and refining activity.
Bulk commodities were weaker, with iron ore slipping 0.7% to USD 103.05 a tonne, offering limited support for major producers after recent strength.
In currency markets, the US dollar firmed modestly, while the Australian dollar edged up 0.1% on the session. The euro and British pound weakened against the greenback, while cryptocurrency markets were steady, with Bitcoin trading little changed near USD 89,000 and Ether holding around USD 3,000.
Economic Calendar
EU:
- Consumer Confidence (MoM Jan) 21:00
US:
- Initial Jobless Claims 00:30
This article was written by Calvin Curdie, Rivkin Securities Pty Ltd. Enquiries can be made via [email protected] or by phoning +612 8302 3632.
