Markets rally as the Fed meets to decide on what could be 2025’s first interest rate cut

Reuters

An “everything rally” in markets greets the start of a two-day Federal Reserve meeting,
with stocks at record highs, bond yields subsiding and a two-month low
dollar taking the heat ahead of what is widely expected to be the first
U.S. interest rate cut of the year.

A
quarter point Fed rate cut on Wednesday is fully priced. But the
spotlight is as much on the central bank’s institutional standing as on
the policy call itself, after a pair of developments underscored the
White House’s growing sway
over the Fed. Meanwhile, gold set a new record high, and China’s
offshore yuan hit its highest level of the year after positive signs
from the U.S.-China trade talks in Madrid.

• The Senate’s narrow confirmation of Stephen Miran
  to the Fed’s Board hands President Donald Trump’s top economic adviser a
  policy vote just as the FOMC convenes, while a U.S. appeals court
  ruling means Governor Lisa Cook can attend unless the Supreme Court
  intervenes. Together with Trump’s public call for a ‘bigger’ cut and his
  stated intent to replace Chair Jerome Powell when his term ends next
  May, the moves highlight the degree of political pressure now bearing
  down on the central bank. Ahead of a 20-year bond auction later today,
  long-term Treasury yields hover close to four-month lows.
• Big Tech led Wall Street gains on Monday, with Tesla shares climbing
  3.6% after regulatory filings revealed CEO Elon Musk had acquired
  nearly $1 billion worth of the electric vehicle
  maker’s stock last week and Alphabet hit a record high to race past $3
  trillion in market capitalization. Nvidia underperformed after China’s
  market regulator said it will continue an investigation into the AI chip leader after early findings showed it had violated the country’s anti-monopoly law.

Although the S&P500’s year-to-date gains of 12% are still
only half of that of the MSCI world index excluding U.S. stocks, funds
tracking the ‘Magnificent Seven’ megacaps are now up 16% for 2025.
S&P futures were higher again ahead of Tuesday’s open.

• China’s offshore yuan hit 2025 highs even though its ebullient stock
  benchmarks stalled on Tuesday after U.S. and Chinese officials said
  they reached a framework agreement to switch short-video app TikTok
  to U.S.-controlled ownership – a move expected to be confirmed in a
  Friday call between U.S. Trump and Chinese President Xi Jinping. The
  Madrid talks encouraged hopes of another extension of the trade truce
  beyond the world’s two biggest economies beyond November. Elsewhere,
  data showed the British jobs market and wage growth softened ahead of
  this week’s Bank of England meeting and German investor morale
  unexpectedly strengthened in ZEW’s September update.

In today’s column, I discuss how euro zone credit markets are
converging, erasing the old ‘core-periphery’ divide and reshaping the
bloc’s borrowing dynamics.