Global markets experienced turbulence on Thursday as U.S. stocks closed with mixed results following the Federal Reserve's decision to delay interest rate cuts. Hopes for a series of rate reductions in 2024 have dimmed as the economy and inflation show unexpected resilience. U.S. shares initially seemed poised for gains, with futures for the S&P 500 and Dow Jones Industrial Average indicating upward movement. However, the ripple effects of the Fed's decision were felt worldwide. European markets opened with a mix of gains and losses, while Asian markets reacted sharply, with the Japanese yen experiencing significant fluctuations and the Kospi in South Korea declining. The Hang Seng index in Hong Kong, however, saw a notable increase.

Global Market Reactions to Fed Rates

European Markets

European markets started the day with a mix of gains and losses, as investors braced themselves for a flurry of corporate earnings announcements. In early trading, London’s FTSE 100 rose by 0.4% to reach 8,155.28. Germany’s DAX saw a slight decrease of less than 0.1% to 17,925.06, while the CAC 40 in Paris experienced a 0.7% decline to 7,926.97.

Asian Markets

The Nikkei 225 index in Tokyo experienced a slight decline of 0.1% and ended the day at 38,236.07. As per the announcement yesterday, the Committee aims to attain full employment and maintain a stable inflation rate of 2 percent in the long term.

Additionally, the Fed Committee believes that the risks of achieving its employment and inflation goals have become more balanced over the past year. The economic outlook is filled with uncertainty, and the Committee is closely monitoring inflation risks. The Fed added that:

In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent. – Fed

Japanese Yen and South Korean Kospi

The Japanese yen experienced a significant surge of up to 2% during the early hours of Asia on Thursday. This surge was fueled by speculation surrounding the possibility of Japanese authorities engaging in another round of yen-buying intervention. Additionally, the weakening of the U.S. dollar following the Federal Reserve meeting also contributed to this surge. Afterwards, the yen changed direction and nullified its earlier gains. The dollar had risen to 155.44 yen, compared to its previous rate of 154.91 yen.

The Kospi in South Korea experienced a 0.3% decline, settling at 2,683.65. This drop came after the release of official data indicating a 2.9% year-on-year increase in consumer prices for April, which was a slower rate compared to March.

Hong Kong's Hang Seng and Australia's S&P/ASX 200

The Hang Seng index in Hong Kong saw a 2.4% increase, reaching 18,187.56. Several markets in China were closed for the Labor Day holiday. Meanwhile, Australia’s S&P/ASX 200 saw a modest 0.2% increase, reaching 7,587.00.

U.S. Market Performance

On Wednesday, the S&P 500 experienced a 0.3% decline, closing at 5,018.39. This drop came after the Federal Reserve decided to maintain its main interest rate at its highest level since 2001, which was in line with market expectations. The index experienced a significant rally of 1.2% during the afternoon, only to relinquish all of its gains by the end of the trading session.

The Dow Jones Industrial Average increased by 0.2% to reach 37,903.29, while the Nasdaq composite experienced a 0.3% decline, closing at 15,605.48.

Asian Crypto Markets’ Performance

In recent months, inflation has shown a lack of further progress toward our 2% objective, as Federal Reserve Chair Jerome Powell pointed out. This has caused stock prices to decline and dashed traders’ hopes for imminent cuts in interest rates.

He also mentioned that it may take more time than initially anticipated to gain enough confidence to reduce interest rates. This action would help alleviate the strain on the economy and stabilize investment prices.

Bitcoin and Cryptocurrency Market

The price of Bitcoin (BTC) has experienced a modest rebound in the minutes following the news, although it continues to face downward pressure. It is currently down over 4% for the session, trading at $58,000.

Furthermore, alongside the rate news, the FOMC revealed its decision to decrease the reduction of Treasuries held on its balance sheet, known as quantitative tightening (QT), from $60 billion per month to a more modest $25 billion per month. Assuming all other factors remain constant, the move is expected to increase risk appetite and drive up asset prices.

Implications for the Future

Economic Outlook

The economic outlook remains uncertain, with the Federal Reserve closely monitoring inflation risks. The Committee's decision to maintain the target range for the federal funds rate indicates a cautious approach, waiting for more concrete signs of inflation moving sustainably toward the 2% target before considering rate cuts.

Market Sentiment

Market sentiment is likely to remain volatile as investors digest the implications of the Fed's decision. The mixed performance of global markets reflects the uncertainty and cautious optimism that characterize the current economic climate.

Cryptocurrency Market

The cryptocurrency market, particularly Bitcoin, is expected to remain under pressure in the short term. However, the reduction in quantitative tightening could provide some relief and potentially drive up asset prices in the long run.

Conclusion

The Federal Reserve's decision to delay interest rate cuts has sent ripples through global markets, with mixed reactions across different regions. While some markets, like Hong Kong's Hang Seng, have seen gains, others, like South Korea's Kospi, have experienced declines. The cryptocurrency market, particularly Bitcoin, continues to face downward pressure, although there are signs of a modest rebound.

As the economic outlook remains uncertain, investors will be closely watching for further developments and data that could influence future decisions by the Federal Reserve. The cautious approach taken by the Fed indicates a focus on achieving long-term stability, but the road ahead is likely to be marked by volatility and uncertainty.

In the meantime, market participants will need to navigate the complex landscape, balancing risks and opportunities as they arise. The coming months will be crucial in determining the direction of global markets and the broader economic environment.