5 things to start your day: Europe

Good morning. Stocks welcome the Federal Reserve's half-point interest rate cut. The Bank of England is expected to keep rates steady. The y

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Good morning. Stocks welcome the Federal Reserve's half-point interest rate cut. The Bank of England is expected to keep rates steady. The yen slumps as the Bank of Japan kicks off its two-day policy meeting. Here's what people are talking about.

Relief rally

Equities in Asia rose along with US and European stock-index futures following the Fed's decision Wednesday. Optimism is growing the start of the central bank's easing cycle with a half-percentage-point move will help guide the US economy toward a soft landing. Treasuries fell as the Fed signaled its aggressive move means it will need to lower rates at a slower pace going forward. Chair Jerome Powell cautioned against assuming big cuts would continue and signaled borrowing costs may need to remain higher than pre-pandemic norms. The yen tumbled against the greenback, while the Bloomberg Spot Dollar Index was little changed. Gold nudged higher as traders are betting on more Fed easing. Meanwhile, oil remained in a holding pattern as signs of weak US demand offset rising tensions in the Middle East. And read Mary's analysis on the dollar, below.

Cautious move?

The Bank of England is likely to refrain from cutting rates, after last month voting for the first reduction in more than four years. Governor Andrew Bailey may provide investors more hints that the central bank will ease again in November. However, he is likely to resist explicitly endorsing the views of financial markets, which have grown more certain that policymakers will move to a quicker pace of easing. Traders will be keen for the BOE's inflation and growth projections, along with its quantitative tightening strategy. The British pound is little changed against the dollar today, though it is far and away the strongest developed-market currency this year.

Commerzbank succession

Commerzbank is looking to speed up the process to replace CEO Manfred Knof as it contends with a possible takeover approach by rival UniCredit. CFO Bettina Orlopp is viewed as a strong candidate to succeed Knof, although the bank will also vet external candidates, according to people familiar with the matter. This month UniCredit disclosed that it built a 9% stake in Commerzbank and indicated it may seek talks. Knof announced just before the stake was made public that he won't seek another term when his contract runs out at the end of next year.

Yen slumps

Japanese assets stood out in the Asian session. The Topix and Nikkei 225 indexes rallied after the yen slumped over 1% against the US dollar, with traders weighing the outlook for yield differentials between Japan and the US. Now all eyes are turning to the Bank of Japan, which started its two-day meeting on Thursday. Economists in a Bloomberg survey were unanimous in their forecasts that there won't be a policy change. The focus will be squarely on the tone of comments from Governor Kazuo Ueda.

Shadow fleet

A network stretching from Dubai to China is involved in a multi-billion dollar effort to ship gas from Russia's Arctic. President Vladimir Putin has adopted the Arctic LNG 2 facility, which came on stream in December, as a national prestige project. It's an opportunity to showcase the country's technology, but it also seeks to prove that Western sanctions — imposed after Moscow's 2022 invasion of Ukraine — can't stop the country's trade. Bloomberg's analysis of company data, satellite images and ship-tracking information shows the lengths to which Moscow appears to be willing to go to capture market share. For more on this feature story, read here.

Coming up

Besides the BOE meeting, we also get a slew of other rate decisions — Norway, South Africa, Turkey and Ukraine. ECB speakers include Knot, Schnabel, Panetta and Nagel. Over in the US, initial jobless claims and existing home sales are due. On the corporate side, FedEx — often regarded as an economic bellwether — reports earnings.

What we've been reading

This is what's caught our eye over the past 24 hours. Tycoon Drahi could lose control of Altice under creditors' plan Oracle-backed chip designer Ampere is said to explore sale SEC approves stock quotes in half-penny ticks on exchanges City of London says UK needs better financial services strategy Xi unleashes a crisis for millions of China's best-paid workers Israel sees 'new phase' in regional war after Lebanon blasts Elon Musk's X bypasses Brazil ban through a software update

And finally, here's what Mary is interested in this morning:

The prospects for emerging-market currencies against the US dollar look more formidable than the outlook for major peers. That's because interest-rate differentials and nuances between central banks will likely matter more for developed market currencies than developing-nation peers. The Federal Reserve's pushback against aggressive rate bets is sending the greenback higher on Thursday as traders digest the Fed's hawkish cut. The commencement of its cutting cycle eases constraints on emerging markets from higher US rates. This is happening against a backdrop of an environment where the US economy is holding up. Higher yielding EM currencies and other higher beta currencies will likely benefit from looser financial conditions and robust global growth. The trajectory against the likes of the euro seems less clear. The dynamics between the two major central banks will matter more. The Fed has mentioned that easing will take on a more measured approach in line with its counterpart, putting rate differentials in check. Swap spreads which arguably overextended in the run up to this week's FOMC meeting may have to adjust in line with broader expectations, providing some support for the US dollar. As long as US rates stay elevated, EUR/USD's upward path will be thwarted. Central banks more aggressive than the Fed will struggle, which will put the Canadian dollar and the Swedish Krona, for example, under more pressure. Bloomberg Markets Live team Executive Editor Mark Cudmore argues: the dollar will remain "in a volatile downtrend overall, undermined by the Fed's dovish reaction function, the hit to policy credibility and upcoming political noise, but intermittently supported by a steeper yield curve and bouts of risk-aversion." I do have sympathy with his view, but not necessarily the conviction. If rate differentials continue to favor the US dollar, then the greenback will remain supported against its G-10 counterparts. Mary Nicola is a macro strategist for Bloomberg's Markets Live team, based in Singapore.

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