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Fed cut lifts Wall Street as AI jitters weigh on Asia

The US Federal Reserve’s third consecutive rate cut on Wednesday initially buoyed sentiment on Wall Street, with major US equity indices closing higher as investors welcomed looser policy and an upgraded growth outlook even as inflation is expected to stay above target for several years. The more dovish stance, including plans to resume sizeable Treasury purchases, pushed the US dollar lower and supported bond markets, while gold and bitcoin eased as the post‑Fed rally faded. By Thursday, however, concerns about the profitability of artificial intelligence investments following weaker-than-expected earnings from Oracle were weighing on risk appetite, dragging down technology and AI-linked stocks in Asia and pointing to a softer start for US and European markets despite the Fed’s supportive policy signals.

  • Date
  • Author Shane Strowmatt, Senior Investment Writer
  • Reading time 5 minutes

Federal Reserve Building
© Shutterstock

The US Federal Reserve approved a third consecutive interest rate cut on Wednesday in a split 9-3 decision, lowering the federal funds rate by 25 basis points to a range of 3.5% to 3.75%. The so‑called dot plot continues to point to only one further reduction in 2026 and another in 2027 before rates converge towards a 3% longer‑run level. Fed Chair Jerome Powell said the central bank is now “well positioned to wait and see how the economy evolves”, with GDP growth projections for 2026 revised up to 2.3% while inflation is still expected to remain above the 2% target until 2028. Alongside the rate move, the Fed announced it will resume Treasury purchases, initially buying USD 40 billion of Treasury bills from Friday to ease funding-market strains, at a time when Powell is nearing the end of his term and US President Donald Trump prepares to nominate his successor. Stocks initially reacted positively, while the US dollar extended losses and bonds strengthened, with the two-year yield around 3.5% and the ten-year yield near 4.1%. Gold prices were drifting lower on Thursday, trading around USD 4210 per ounce as the initial post-Fed surge faded. Bitcoin was trading weaker, changing hands around USD 90,400 amid a broader consolidation in crypto markets.

Asian stock indices weighed down by tech jitters

By Thursday, however, global stocks came under pressure after weaker-than-expected earnings from US cloud group Oracle raised concerns about the profitability of artificial intelligence investments. Oracle’s shares slumped 11.7% in after-hour US trading. Most Asian equity markets traded lower after Oracle's disappointing earnings and investment guidance, which raised doubts about the sustainability of the broader artificial intelligence rally. Losses in technology and AI-related stocks overshadowed the more accommodative message from the Fed. Japan’s Nikkei 225 was trading 0.9% lower, exacerbated by a sell-off in tech-related names like SoftBank, while Korea’s Kospi fell 0.6%. Australia’s S&P/ASX 200 was 0.2% higher, supported by rate-cut expectations at the Australian central bank following weak labour market data. Hong Kong’s Hang Seng Index was essentially flat and mainland China’s CSI 300 was down 0.9%.

Fed rate cut lifts US equity markets

US stocks rose on Wednesday, reacting to the Fed decision, but before the negative sentiment from Oracle's earnings after the bell could set in. The Dow Jones Industrial Average gained 1.1% to 48,057.75 points, its highest level since mid-November, while the broader S&P 500 advanced 0.7% and the technology-heavy Nasdaq 100 rose 0.4%. US stock futures were in the red on Thursday, signaling the weak sentiment from Asian markets will likely hit US equities when markets open later in the day. In Europe on Wednesday, stock market movements were muted ahead of the Fed, with the Euro Stoxx 50 falling 0.2%.

Bank of Canada keeps key rate unchanged

The Bank of Canada left its key overnight interest rate steady at 2.25% on Wednesday, with the Bank Rate at 2.5% and the deposit rate at 2.20%, as it seeks to guide the Canadian economy through what it described as a period of structural adjustment. Canadian gross domestic product expanded by a stronger-than-expected 2.6% in the third quarter, driven largely by volatile trade flows while underlying domestic demand stagnated, and the central bank expects growth to weaken in the fourth quarter before improving in 2026. Consumer price inflation eased to 2.2% in October from earlier months as fuel costs fell and food inflation moderated, remaining close to the 2% target for over a year, although core inflation is still between 2.5% and 3%. Governor Tiff Macklem said steep US tariffs on trade-sensitive sectors such as steel, autos and lumber are weighing on business investment and making the adjustment more structural than cyclical, even as recent federal spending plans, particularly in defence, are expected to support both demand and supply over time.

Corporate and economic calendar

Corporate news in focus: Quarterly figures from Broadcom and Costco.

Economic data in focus: Swiss National Bank (SNB) interest rate decision (09:30), Canadian trade balance (14:30), US weekly initial jobless claims (14:30), US trade balance (14:30).

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.