U.S. Indexes closed higher on Wednesday, with outperformance in the NASDAQ 100, although the equal-weight S&P 500 was flat. Sectors were predominantly firmer, with Tech, Energy and Financials leading, while Utilities, Real Estate and Consumer Staples closed in the red. Tech received a boost from Oracle (ORCL) after it provided long-term guidance and announced plans to limit capital raises, helping support several recently pressured neocloud names following debt concerns in the AI space. Note: after-hours earnings saw Google (GOOGL) tumble post-earnings while Microsoft (MSFT) rallied. Cyber & Software names were hit after Fortinet (FTNT) and ServiceNow (NOW) figures. The Treasury yield curve steepened in the wake of the FOMC rate decision and press conference. The Fed left rates on hold as expected, although Cook and Hammack dissented in favour of a 25 basis points hike. The statement added the line: “The accumulation of more information will help the Committee determine the policy stance appropriate to ensure a timely return of inflation to the Committee’s 2 percent goal”, emphasising its data-dependent approach to policy decisions. Meanwhile, Chair Warsh’s press conference delivered few hawkish surprises, and he continued to avoid explicit forward guidance, with the yield curve steepening during his remarks. The Dollar was sold during the FOMC press conference, but the Kiwi was the clear laggard following the surprise RBNZ hold overnight, against expectations for a hike. The dovish RBNZ surprise weighed on NZD and shifted rate differentials in favour of AUD, while the broader equity upside and hot Australian inflation also supported the Aussie. The Canadian Dollar was bid amid firmer oil prices and the Bank of Canada rate hike. Sterling was little changed following the UK budget, which was largely as expected, with fiscal headroom seen at GBP 15 billion by 2029/30, in line with forecasts. Crude prices were volatile but settled firmer, although reporting remained mixed regarding the nature of talks between the US and Iran. The latest report came around the closing bell, with the Wall Stret Journal reporting that US Vice President Vance had reached out to an Iranian hardliner in a bid to restart peace talks. Meanwhile, NewsNation reported there had been considerable back-and-forth between the two nations via mediators, with discussions generally positive but no final decisions made. It added that the US had not informed Gulf nations of plans for a short, intense military campaign after the midterms, contrary to overnight WSJ reporting. The Federal Reserve left rates on hold at 3.75-4.00%, as widely expected, with Cook and Hammack dissenting in favour of a 25bps hike, with the former somewhat of a surprise. As has been the case under the Warsh stewardship, the statement was little changed, but added one key line, which says, “The accumulation of more information will help the Committee determine the policy stance appropriate to ensure a timely return of inflation to the 2% goal”. This likely shows the Fed is committed to a data-dependent approach when deciding policy, but we will look for any further elaboration from Chair Warsh’s press conference. Aside from that addition, the only other change was its upgrading of language around economic growth to “strong” from “solid”. It reiterated the familiar lines that inflation remains elevated and once again highlighted the steady labour side of mandate, stating “Job gains have kept pace with the workforce, and the unemployment rate has changed little”. All in all, desks await Warsh’s presser for any further clues ahead, but he is usually reluctant to provide any explicit forward guidance. Fed Chair Warsh continued to avoid explicit forward guidance and stressed his commitment to price stability. When asked about the meeting, he described it as a “strong family fight”, but added that the overwhelming judgement was that the monetary medicine was starting to work. The FOMC decided to take stock of where things stand, with the view that policymakers will have more information over the next six weeks to make an appropriate decision in December. He reiterated that September’s rate hike removed a dose of accommodation and said he was encouraged by the progress made in a short period. Warsh also discussed financial conditions, stating that he would not characterise them as tight, while speaking positively about economic growth. On AI, Warsh stressed that the sector is not immune to interest rates, citing recent corporate debt developments. Meanwhile, Warsh provided some insight into the future structure of FOMC meetings. The eight-meeting format will remain, although one meeting in 2027, beginning in the fall, will focus on strategy and will not involve a monetary policy decision or vote. The number of strategy meetings will increase to two per year in 2028. In reaction, the Treasury yield curve steepened amid a lack of hawkish surprises and Warsh’s continued reluctance to provide forward guidance, while the Dollar weakened. Money Markets continue to price a December hike as the base case, with the implied probability easing to around 85% from 90% beforehand. Elsewhere, Oil closed higher by 2.7% while Gold ended a volatile session flat.
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