European stocks fell and US equity futures slipped on Friday as some bad news on earnings tempered the euphoria around the trajectory for interest rates.
Europe’s Stoxx 600 fell as Mercedes-Benz Group AG slumped as much as 8.4% after cutting its financial forecast because of sluggish China sales. US futures retreated, just hours after the S&P 500 notched its 39th record high of 2024. FedEx Corp. plunged 13% in premarket trading as the economic bellwether missed profit estimates and cautioned that its business would slow.
The Federal Reserve’s bold half-point rate cut this week boosted confidence that it will be able to engineer a soft landing, but warnings such as the one from FedEx underscore lingering risks to the economy. Fed policymakers have projected a further half point of reductions this 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 ticked higher.
The Bank of Japan was in focus as it kept policy unchanged, with the yen weakening as Governor Kazuo Ueda’s commentary proved less hawkish than some traders expected. Ueda signaled little urgency to hike rates, and said that upside risks to inflation are easing.
For Bank of America Corp.’s Michael Hartnett, the optimism in equity markets following the Fed’s move is stoking the risk of a bubble, making bonds and gold an attractive hedge against any recession or renewed inflation.
The strategist said stocks are now pricing in more Fed easing and about 18% earnings growth for the S&P 500 by end-2025. It doesn’t “get much better than that for risk, so investors are forced to chase” the rally, Hartnett wrote in a note.
He also said stocks outside the US and commodities were a good way to play a possible soft economic landing, with the latter being an inflation hedge. International equities are cheaper and starting to outperform US peers, according to Hartnett.
In commodities Friday, gold hit a fresh record as the Fed’s aggressive start to policy easing continued to ripple through markets. Oil was on track for the biggest weekly advance since February.
Key events this week:
Some of the main moves in markets:
This story was produced with the assistance of Bloomberg Automation.
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