Markets digest a Federal Reserve rate cut, a U.S.-China tariff truce and mixed megacap earnings. The Fed trimmed rates by 25 basis points and stopped quantitative tightening, yet Chair Jerome Powell said another cut is not a foregone conclusion, leaving short-term rate expectations uncertain. The U.S.-China agreement trims some tariffs in exchange for China cracking down on fentanyl and buying soybeans, which matters for trade flows now and for supply chains over time. Globally, flows and currencies are reacting: the dollar firmed, the yen hit eight month lows and Chinese markets slipped. In the short term traders test policy signals. Over the long term, dollar direction and trade policy could reshape global capital allocation.
Fed action and market reaction
Investors opened the trading day processing a Federal Reserve move that cut interest rates by a quarter point and announced an end to quantitative tightening this year. The cut was widely expected, yet the Fed chair’s comment that another reduction in December is not certain reset some expectations. Yields and the dollar firmed into the session. Markets now price roughly a 70 percent chance of another cut by year end.
Bond yields reacted to the tone more than to the number. Short-term treasury yields climbed as traders reassessed the path of policy. That response shows how sensitive markets remain to forward guidance. For U.S. risk assets the result was muted. Equity futures stalled after the Fed decision and held in a narrow range overnight.
For domestic investors this matters now because small changes in the expected path of rates can alter hedge strategies and portfolio duration. For global investors it matters because U.S. policy still sets the tone for global capital flows and borrowing costs. The Fed’s pause on a clear commitment to further cuts leaves room for volatility in currencies and cross-border funding costs over the near term.
Trade moves from the U.S.-China summit
Leaders in Busan agreed terms that reduce some tariff exposure and aim to restrain illicit fentanyl flows. The deal cuts fentanyl-related tariffs to 10 percent and secures commitments from Beijing on rare earth exports and renewed soybean purchases. The agreement removes an immediate 100 percent tariff cliff and replaces it with a 12 month framework that narrows the chance of a sudden disruption.
Markets reacted quickly. Chinese stocks and the yuan dropped on the readouts, suggesting investors wanted more detail on enforcement and scope. The short-term effect is a recalibration of risk for exporters and commodity flows. Over time the pact could ease some supply chain uncertainty if the commitments hold. However, the readouts made little reference to unrestricted access to advanced AI chips from companies such as Nvidia (NASDAQ:NVDA), leaving chip trade restrictions still central to tech export policy.
From a regional view, U.S. agriculture stands to see clearer demand signals for soybeans. Asian export industries will watch rare earth terms closely. European markets will look through this as one more variable affecting global trade growth and commodity demand.
Megacap earnings mixed and the tech spending story
Early megacap results produced a mixed tone. Alphabet (NASDAQ:GOOGL) impressed markets with strong cash flow that helped balance heavy capital spending. Microsoft (NASDAQ:MSFT) and Meta (NASDAQ:META) posted different reactions. Meta jumped on an earnings beat and set a higher capex plan of $91 to $93 billion for the year. Microsoft fell on a forecast of rising spending and experienced an Azure outage that briefly weighed on sentiment.
Investors are focused on how AI investment is being funded. Capital expenditure ratios highlight differences. Alphabet’s capex in the recent quarter represented about half of its cash generated from operations. Meta’s ratio is higher and Microsoft’s is even higher, showing that funding for AI build-outs is front loaded. That dynamic is important for equity volatility now because markets must judge whether these investments will translate into margin gains later or whether they will pressure near-term earnings.
Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) report after the close, adding more data points on consumer demand, cloud spend and enterprise adoption of AI tools. For traders, this earnings calendar creates near-term event risk. For longer term holders the story remains how profit pools reallocate across cloud, advertising and consumer hardware as AI adoption continues.
Currency and global policy pressures
Currency moves reflected policy divergence. The Bank of Japan deferred further rate rises, which knocked the yen to eight month lows. Treasury Secretary Scott Bessent publicly urged Japan to keep tightening, a sign that this U.S. administration will actively press for weaker foreign currencies when it sees a U.S. dollar rally as harmful to trade competitiveness.
The U.S. administration’s preference for a relatively weaker dollar is central to its trade agenda. Officials want to narrow trade deficits and encourage onshoring. That approach can reduce foreign capital inflows to U.S. markets in the long term. The dollar’s real effective exchange rate rose almost 50 percent over the 15 years through 2024 and has only retreated about 5 percent since. Those moves help explain why Washington is sensitive to any renewed appreciation and why intervention through diplomacy is visible now.
Outside the United States, European Central Bank policy meetings and economic prints will frame euro zone sentiment. The ECB is expected to hold rates steady at 2 percent, with euro zone GDP modestly stronger than forecast. Sterling’s decline to a multi-year low versus the euro reflects speculation about Bank of England policy and potential fiscal measures in the United Kingdom. These cross currents mean currencies will continue to be a key channel for global monetary spillovers into markets.
Overall, the session looks set to be driven by central bank messaging, the fallout from the U.S.-China summit, and corporate earnings from major technology firms. Short-term price action will reflect updates to policy expectations and earnings details. Over the medium term investors will be watching how trade commitments and AI-driven spending reshape cash flows, capital allocation and cross-border financing.
