US Futures Turn Higher as Fed Move Ripples Through Global Markets

New York (Sept 27)  U.S. stock futures turned higher Thursday, even as Global stocks weakened as investors sifted through the language of yesterday's interest rate hike from the U.S. Federal Reserve and traders watched different reactions in asset markets all over the world.

The Fed's third rate hike of the year, a 0.25% move which lifted its key lending rate to within the range of 2% to 2.25%, was accompanied by the removal of a reference to "accommodative" monetary policy for the first time since the global financial crisis, a decision initially seen as a signal for faster rate hikes going forward.

However, Fed Chairman Jerome Powell played down the change in language, noting that while the economy was solid, the benefits of growth haven't been shared across the whole of the nation, a dynamic which requires only gradual rate increases and a keen eye on inflation pressures.

Powell was careful not to go too deep into the impact of the U.S.-China trade war, nor the spillover implications for prices based on the myriad tariff disputes currently being fought from the White House. He also refused to be drawn into a discussion about deeper fiscal stimulus. Each of these, of course, represent risks to domestic GDP growth over the second half of President Donald Trump's four-year term, during which he has remained "not wild" about the Fed's ambition to lift interest rates.

"We see the US economy facing more headwinds as we move into 2019. The support from this year's massive fiscal stimulus will gradually fade while tighter financial conditions in the form of higher US borrowing costs and the stronger dollar will also act as a brake on growth," ING analysts wrote. "Then there is the gradual drag from trade tensions that will impact supply chains and put up the cost of doing business, while emerging market weakness could start to exert more of a drag on global and US activity."

Market reaction appeared to echo that view: the U.S. dollar index, which tracks the value of the greenback against a basket of six global currencies, gained 0.35% in overnight trading to change hands at 94.53, while 2-year U.S. Treasury note yields, which are most sensitive to future rate hikes, slipped 2 basis points to 2.811% as investors trimmed their bets on the number of 2019 rate hikes from three to two based on the Fed's signalling of a "neutral" level of around 3.4% by 2020.

U.S. equity futures, however, improved throughout the morning, with contracts tied to the Dow Jones Industrial Average  indicating a 15 point gain and those linked the S&P 500  suggesting a 2.5 point advance for the broader benchmark. Nasdaq Composite  futures were marked 21 points to the upside.

Apple Inc. (AAPL) shares jumped higher in pre-market trading Thursday after JPMorgan Chase initiated coverage on the world's biggest tech company with an overweight rating and a price target of $272 a share.

Action Alerts Plus holding Apple shares were marked 1.4% higher in pre-market trading in New York Thursday, indicating an opening bell price of $223.64 each, a move that would extend the stock's year-to-date advance past 32%.

Stocks in Asia, which had initially traded higher on a dovish assumption from the Fed statement, reversed those gains later in the session as markets in China faded into the red, pulling the MSCI Asia ex-Japan index 0.13% lower heading into the final hours of trading. Japan's Nikkei 225, which was also marked higher in the early session as automakers gained following news that Trump will freeze tariffs on the sector as he discusses a new trade deal with Prime Minister Shinzo Abe, before falling quickly into the close to end 1% lower at 23,796.74 points.

European stocks, however, were weaker across the board at the start of trading, with financial stocks leading the decline, as investors priced-in both a softer rate path from the Fed and reacted to news of a possible delay in Italy's 2019 budget, a report that send government bond yields sharply higher and rippled through the region's financial sector.

The Stoxx 600 index was marked 0.21% lower by mid-day in Frankfurt while markets in Germany and France recorded similar percentage declines. Italy's FTSE MIB index, which is heavily-weighted towards the banking sector, fell 1.24% while benchmark 10-year government bond yields rose 13 basis points to 2.95%.

Britain's FTSE 100 was little-changed in the opening minutes of trading in London, with the pound holding firm at 1.3120 against a stronger U.S. dollar, following a statement from the Prime Minister's office that Theresa May and President Trump spoke about a "big and ambitious" trade deal between the two countries following Britain's exit from the European Union on the sidelines of the U.N. General Assembly.

The stronger dollar, however, failed to tame global oil prices, which extended gains to a fresh four-year high as traders prepare for the imposition of sanctions on the sale of Iranian crude and doubt the ability -- as well as the willingness -- of OPEC members to offset the loss of supply with production increases.

Curiously, that doubt followed both an increase in domestic U.S. crude stocks, which the Energy Information Administration said rose 1.8 million barrels last week to 396 million, and data showing U.S. production rose to a record 11.1 million barrels per day over the same period.

Brent crude contracts for November delivery, the global benchmark, were seen 91 cents higher from Wednesday's close in New York to trade at $82.25 per barrel while WTI contracts for the same month, which are more tightly-linked to domestic gasoline prices, were seen 95 cents higher at $72.52 per barrel.

TheStreet