Morning Bid: Taking stock after Fed glow, Japan/China hold

A look at the day ahead in U.S. and global markets from Mike Dolan

After a roaring Thursday that saw Wall Street stocks lap up deep Federal Reserve easing into a still-healthy economy, there's a modest step back today and an eye on other central banks choosing to stand pat for now.

Going in different directions to each other policy-wise, central banks in Japan and China choose to hold the line on their interest rates on Friday - the latter slightly surprisingly given the alarming deceleration of its economy.

The People's Bank of China unexpectedly left lending rates unchanged at monthly fixings, confounding forecasts after the outsize 50 basis point Fed cut on Wednesday. Almost 70% of market participants polled earlier in the week had seen a cut.

Whether that's just a delay to synch up with broader stimulus plans later is a moot point, but - perhaps unhelpfully for China - it's lifted the offshore yuan to a new 16-month high.

Less surprisingly, the Bank of Japan left policy settings unchanged on Friday too - holding back from further tightening for now even as it upgraded its economic assessment and core consumer inflation ticked up to 2.8% in August as expected.

With BOJ officials seemingly unrushed in further 'normalisation' of ultra-low rates, the yen weakened back to near 144 per dollar.

In Europe on Thursday, the Bank of England - with one eye on the new Labour government's first budget next month - also held back from making its second rate cut of the year. And that lifted sterling to its best levels since March 2022.

The UK backdrop to both the BoE decision and the budget was mixed - with falling consumer confidence at a six-month low, even though rising August retail sales beat forecasts. The fiscal picture darkened, however, with news of bigger public borrowing last month than, expected and government debt at 100% of GDP for the first time since comparable records began 31 years ago.

Back on Wall Street, it was still largely a case of 'what's not to like?' for investors.

The big Fed cut alongside news of falling weekly jobless puts the 'soft landing' firmly on track and all stock indexes surged on Thursday - with new record highs for the S&P500 and the equal-weighted version of the index that adjusts for the handful of megacap leaders.

Both the tech-heavy Nasdaq and small cap Russell 2000 hit their best levels since July.

The S&P500 and Nasdaq are now both up 20% for the year so far. The VIX volatility gauge subsided under 17 and below long-term averages.

Fed futures, which price slightly more easing over the remainder of this year than the additional 50bps indicated by the central bank, now see 200bps of cuts over the coming 12 months, to settle at 2.9% - where the Fed has indicated its long-term 'neutral' rate now lies.