Fed holds rates steady; Powell tempers hopes of a September cut

GLOBAL MOOD: Risk Off
Drivers: Fed holds rates, Powell dampens rate cut hopes

Markets turned risk-off on Wednesday after the Federal Reserve signalled that rate cuts in September are far from certain. Equities gave up early gains, Treasury yields rose, and the dollar strengthened as Powell’s cautious tone overshadowed corporate earnings optimism.

TODAY’S WATCHLIST
 - Bank of Japan Monetary Policy
 - Earnings: Adani Enterprises, Hindustan Unilever, Maruti Suzuki

THE BIG STORY
The Federal Reserve kept interest rates unchanged on Wednesday and Chair Jerome Powell signalled it is too early to expect rate cuts as soon as September. Powell stressed that the Fed’s priority remains controlling inflation rather than responding to President Trump’s demands for immediate relief on borrowing costs.

He noted that the impact of new tariffs and recent policy changes on inflation, jobs and growth is still uncertain, and said the central bank will need more data before adjusting its “modestly restrictive” stance. With two months of economic data due before the Fed’s mid-September meeting, Powell left the door open but cautioned against assuming a rapid pivot in policy.

DATA SPOTLIGHT
US pending home sales fell 0.8% in June, missing expectations for a 0.3% rise, as higher mortgage rates weighed on demand. Contracts, which typically convert to sales in one to two months, were down 2.8% from a year earlier, according to the National Association of Realtors. The housing sector continues to face headwinds from elevated borrowing costs and economic uncertainty.

Separately, US GDP rebounded more strongly than forecast in April-June, growing at an annualised rate of 3.0% after contracting 0.5% in January-March. However, much of the gain reflected a drop in imports, with domestic demand rising to its slowest pace in 2½ years. Economists warned that the underlying momentum remains soft, with full-year growth expected to average around 1.5%.

Takeaway: The data highlights continued weakness in the US housing market as higher mortgage rates weigh on buyer activity. While headline GDP growth rebounded in Q2, much of the improvement was driven by falling imports, masking slower underlying domestic demand and signalling a fragile economic outlook for the second half of the year.

WHAT HAPPENED OVERNIGHT

• US stocks closed lower after Fed dampens September rate cut hopes
  
  • US stocks finished well off earlier highs on Wednesday after the Federal Reserve kept rates unchanged and signalled caution on cutting rates in September.
  • After the bell, Microsoft and Meta Platforms both surged over 6% on strong earnings, while investors awaited results from Amazon and Apple on Thursday.
  • Starbucks reported better-than-expected sales but slipped 0.2%, Hershey gained 1.4% on strong results, and VF Corp rose 2.6% after beating revenue forecasts.
    
    

• US Treasury yields rise as Fed tempers rate cut expectations
  
  • Yields climbed on Wednesday after Fed Chair Jerome Powell signalled uncertainty over a possible rate cut at the September meeting.
  • The 10-year yield rose 3.8 bps to 4.366%, while the 30-year yield gained 2.7 bps to 4.895%.
  • The 2-year yield, which is most sensitive to Fed policy expectations, increased 5.9 bps to 3.935%.
  • The move reflected a shift towards expectations of a more cautious Fed stance in the months ahead.
    
    

• US dollar climbs as Fed signals cautious stance
  
  • The Dollar Index surged 1.01% to 99.89 on Wednesday as markets reacted to Fed Chair Jerome Powell’s comments dampening September rate cut expectations.
  • The euro fell 1.13% to $1.1416, sterling weakened 0.78% to $1.3244.
  • Powell’s remarks supported the greenback as traders priced in a slower pace of monetary easing.
    
    
• Crude oil prices rise on geopolitical tensions
  
  • Brent prices gained more than 1% on Wednesday as investors focused on geopolitical risks tied to President Trump’s shorter deadline for Russia to end the war in Ukraine.
  • The market also reacted to Trump’s threat of higher tariffs on countries that continue to trade Russian oil.
  • Traders remained cautious, balancing these risks against broader concerns about global demand and supply.

Day’s Ledger

Economic Data:

• Australia June Retail Sales
• BoJ Quarterly Outlook Report
• Japan June Retail Sales
• Euro June Unemployment Rate
• US June Core PCE Price Index
• US June Personal Income
• US Initial Jobless Claims

Corporate Actions:

• Earnings: 3I Infotech, Adani Enterprises, Ambuja Cements, City Union Bank, Coal India, Dabur India, DCB Bank, Eicher Motors, Emami, Hindustan Unilever, JSW Energy, Maruti Suzuki, Sun Pharmaceutical, Swiggy, Thermax, TVS Motor, Vedanta
• Davangere Sugar to consider fund raising.
• Titan Intech to consider stock split

Policy Events

• BoJ Interest Rate Decision
• RBA Hauser Speech

Tickers to Watch

• Adani Total Gas: ICRA upgraded Adani Total Gas's long-term rating to AA+ with a stable outlook and reaffirmed its short-term rating at A1+.
  
• Tata Steel: Net profit more than doubled to ₹20.8 billion on cost cuts and better realisations, despite lower volumes and a 2.8% revenue dip.
• IndiGo: Profit slumped 21% YoY to ₹21.61 billion as costs outpaced revenue growth, missing Street estimates.
• IRFC: Raised $300 million via 5-year yen-denominated ECBs from Sumitomo Mitsui’s GIFT City branch.
• Kaynes Technology: Posted a 47% YoY jump in Q1 net profit to ₹746 million on 34% revenue growth.
• Mahindra & Mahindra: Net profit rose 32% YoY to ₹34.5 billion, driven by strong auto and farm segment growth.
• IIFL Finance: Net profit fell 19% YoY to ₹2.33 billion due to higher finance costs and lower other income.
• JB Chemicals: Net profit rose 14.2% YoY to ₹1.98 billion, backed by 9.2% revenue growth.
• CESC: Net profit rose 10% YoY to ₹2.11 billion despite flat revenues, aided by lower energy and fuel costs.
• Jio Financial: To raise up to ₹158.25 billion via preferential issue of 500 million warrants at ₹316.50 each.
• Punjab National Bank: Net profit halved YoY to ₹16.75 billion due to a one-time ₹33.2 billion tax hit under new regime.

MUST READ

• India Holds Its Ground as Others Bow to US Tariff Demands·       
• US economy rebounds in second quarter; but underlying trend is soft
• Jane Street yet to resume F&O trade; market vigilance up: Sebi chief
• Indian textile industry in uncertainty, still sees edge over rivals
• MFIs face tough recovery path; profitability seen by FY26-end: CRISIL
• Retail mortgage loans by NBFCs, HFCs seen at ₹20 trillion by FY28: ICRA
• World Bank plans securitisation, debt swaps to boost development
• Google to invest $6 billion in southern India data centre
  

See you tomorrow with another edition of The Morning Edge.

Have a great trading day.

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