What matters in U.S. and global markets today

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Morning Bid U.S.

Morning Bid U.S.

A Reuters Open Interest newsletter

What matters in U.S. and global markets today

 

By Anna Szymanski, Editor-in-Charge, Reuters Open Interest

Stocks edged up early on Thursday as investors digested the Federal Reserve's first interest rate hike in three years. The central bank lifted the benchmark rate by a quarter point to 3.75%-4.00% and signalled more tightening to come.

While short-dated Treasury yields rose, longer-dated yields nudged slightly lower, suggesting investors are gaining confidence in Fed Chair Kevin Warsh's ability to do what's necessary to get inflation back down to the 2% target.

I'll get into that and more below.

But first, listen to the latest episode of the Morning Bid daily podcast, where we discuss the Fed's hawkish turn and the other central bank policy decisions due this week.

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Today's Market Minute

  • Investors are gaining more confidence in the Fed's inflation-fighting backbone, but uncertainty about how far it will raise interest rates to keep prices in check is likely to cause volatility for stocks and bonds in the weeks ahead.
  • U.S. President Donald Trump has threatened to take action against the EU if it moves forward with European Commission President Ursula von der ‌Leyen's proposal to make Canada the bloc's first associate member.
  • Rogue AI agents from OpenAI hijacked Hugging Face user accounts and probed the site itself for vulnerabilities as early as May, nearly two months before the July breach of ‌the open-source repository drew global attention, according to researchers who reviewed the activity.
  • Is AI really a bubble? AI's bears may grab the headlines, but the bulls have more data on their side, argues Marty Fridson.
  • A shipowner reportedly paid more than $5 million for a single Panama Canal transit slot. That may only mark the start of a historic surge in shipping costs, writes ROI Global Energy Transition Columnist Gavin Maguire.
 

A timely hike

While the Fed's rate hike was in line with market expectations, the messaging was slightly more hawkish than many anticipated. Warsh oversaw a unanimous decision to raise the policy rate.

Moreover, 16 of the 18 policymakers submitting a rate projection in the so-called "dot plot" expected at least one more quarter-point hike by the end of 2026. The Fed chair, who is averse to forward guidance, did not submit a projection, though his comments after the release were decidedly hawkish.

The policy statement noted the move would "support a timelier return" to the 2% target rate. Warsh justified the hike by pointing to persistently above-target inflation, as well as recent signs of a strengthening economy.

President Trump - a longtime advocate of easing policy - responded to the move by calling once again for lower interest rates, but he stopped short of criticizing Warsh, a stark contrast from his treatment of Warsh's predecessor Jerome Powell.

There may be more bad news for the president on the rates front. Fed funds futures late on Wednesday indicated a roughly 50% chance of a hike at the central bank's next meeting in October, which would come just before the midterm elections that will decide control of Congress.

But markets appear content with the Fed's decisive move, even if the path forward is still unclear. The 10-year Treasury yield eased below 5% after initially rising slightly following the policy decision, while the 30-year nudged lower but stayed near a recent 19-year high.

Wall Street futures are also pointing higher before the bell on Thursday, after major indexes closed lower on Wednesday.

Attention now turns to the other major central bank decisions due this week, with the Bank of England expected to stand pat today and the Bank of Japan very likely to hike again on Friday.

In energy markets, oil prices extended losses on Thursday after both Brent and WTI settled some 3% lower the day before. Saudi Arabia is offering additional crude cargoes through Oman, according to sources. That's expected to ease at least some of the supply loss from recent attacks on the Kingdom's East-West pipeline.

However, fighting escalated between Saudi Arabia and Yemen's Iran-backed Houthis on Wednesday as they traded further strikes and widened a new front in the Middle East conflict - one that's given Iran a strategic boost. President Trump, meanwhile, says he hopes that an end to the Iran war is near.

Finally, the U.S. House of Representatives on Wednesday passed a sweeping sanctions and tariff bill intended to increase economic pressure on Russia over its invasion of Ukraine. The bill will now be sent to President Trump to sign into law.