Fed casts shadow over further easing – Major tech earnings mixed

Fed cuts rates but pours cold water on potential further easing

There were no surprises regarding the Fed rate cut last night, as the central bank lowered the target rate to 3.75% - 4.00%. While you will recall that investors fully priced in the move beforehand, the decision drew a two-way dissent: Fed Governor Stephen Miran unsurprisingly voted for a weighty 50-bp cut, while Kansas City Fed President Jeff Schmid opted to hold rates steady. The Fed also noted that it would wind down its holdings of government debt on 1 December. 

The accompanying rate statement underscored that the Fed remains between a rock and a hard place. While noting that economic activity continues expanding at a moderate pace, the Committee highlighted persistent inflationary pressures alongside emerging employment risks – a combination that evokes stagflation concerns. This, of course, suggests the Fed will remain divided going forward and highlights the challenging situation it currently faces. 

Fed Chair Jerome Powell’s presser was interesting, effectively dampening expectations for a December rate cut. Powell characterised additional easing this year as ‘far from a foregone conclusion’, prompting markets to reprice December odds from 100% to 70% (now reflecting just 18 bps of expected cuts). This hawkish recalibration lifted US Treasury yields and the USD, while pressuring Stocks and Gold.

The ongoing government shutdown has clearly clouded the Fed's view, with limited access to official government data. When asked about this, Powell said ‘If you're driving in the fog, you slow down’, suggesting the data drought could make the Fed more cautious about moving in December.

US tech earnings deliver mixed results

Three tech giants reported after yesterday’s close – Alphabet (GOOG), Meta Platforms (META), and Microsoft (MSFT) – and delivered a mixed bag of results, despite a broadly robust fundamental backdrop.

Alphabet jumped following a blowout quarter with US$102 billion in revenue, with strong execution across Search, Cloud, and AI. Microsoft, however, took a hit despite beating estimates with 39% Azure growth, as investors baulked at higher-than-expected CapEx spending of US$34.9 billion. Meta also struggled to find bids after reporting a surprise US$5.93 billion one-time tax charge that crushed reported earnings. However, the bigger concern was guidance on CapEx spending in 2026, which raised questions about whether AI infrastructure investment is reaching unsustainable levels.

All three companies are spending billions on AI, but the market is rewarding execution while punishing uncertainty.

Trump-Xi meeting

Following the conclusion of US President Donald Trump’s meeting with Chinese President Xi Jinping in South Korea, Trump described it as ‘amazing’, rating the meeting a ‘12’ on a scale of 1 - 10. The talks included agreements from China to begin purchasing US soybeans, to postpone rare-earth export restrictions, and to curb fentanyl flows.

Despite this, markets largely overlooked Trump’s comments, seemingly viewing them as more of a truce rather than anything concrete in terms of long-term trade deals.

BoJ holds steady – ECB expected to follow suit

Overnight, the BoJ announced it would keep the policy rate steady at 0.5%, as widely expected. Much like the previous meeting, two members dissented – Naoki Tamura and Hajime Takata – calling for a 25 bp hike to 0.75%.

The central bank also released its Quarterly Outlook Report, which revealed a moderate upward revision to growth for the fiscal year 2025, but kept projections for 2026 at their current levels. Inflation estimates remained unchanged, and the bank reiterated its pledge to raise rates if the economy and prices perform in line with forecasts.

As you would expect, the market’s reaction was largely muted. 

The ECB meeting is up at 1:15 pm GMT today. In an earlier post this week, I emphasised that I expect today’s meeting to be a snoozer. Money markets are forecasting rates to remain on hold today as well as in December, leaving the deposit rate at 2.0% – the mid-point of the ECB’s neutral rate.

To quote ECB President Christine Lagarde, policy is in a ‘good place’ right now, and I expect the central bank to reiterate that. Inflation continues to meander around the central bank’s 2.0% target, growth is gradually ticking higher, and unemployment remains near historic lows.

Additionally, as I noted in a previous post, I anticipate that the central bank will continue to adopt a data-dependent, meeting-by-meeting approach while avoiding any pre-commitment to a future rate path. Should the ECB emphasise its neutral stance, however, this could trigger a bid in the EUR.