US futures rise as markets hope for dramatic Fed pivot

European markets are on the front foot this morning, following on from an Asian session that saw the Japanese Nikkei 225 surge by over 10%. Coming off the back of Monday’s record decline, the Nikkei posted its biggest ever jump in terms of points today. This has left markets wondering whether the worst is over after a collapse in global markets that saw the VIX hit the highest level since the Covid pandemic. The tentative gains seen in Europe reflect the continued uncertainty evident within global markets, with Asian, US and European indices all still well below their July highs despite the push higher seen today. With many looking towards the Japanese yen as the key element underpinning the recent global declines, today saw a meeting between the Japanese government and BoJ as they sought to address the volatility seen throughout markets. For now, we are yet to see any particular shift in approach from the BoJ, but any weakening in the hawkish rhetoric could provide a boost for equity markets given the positive impact it could have on USDJPY.

The RBA opted to keep rates steady as expected overnight, with the elevated nature of Australian inflation serving to hinder any efforts to drive down rates in the near-future. Crucially, the RBA projections laid out a path that saw inflation remaining well above target for years to come, with 2016 CPI set to fall back down to 2.6%. Notably, Australian interest rates are already significantly below many of the Western peers, and with inflation remaining elevated, we look unlikely to see any move from the RBA anytime soon.

US markets are expected to stage a recovery later today, as traders continue to cool concerns in the wake of yesterday’s rebound for the ISM services PMI. Comments from Fed member Goolsbee highlighted the view that the Federal Reserve will adjust policy according to economic data rather than financial markets. As such, while markets are split between whether we see 100 or 125-basis points worth of cuts across the final three meetings of the year, there is a chance that we see a more cautious approach should the US data released over the course of August fail to push the recessionary narrative that has been peddled since last week.