| Good morning. The market euphoria that followed the Fed's big cut is fading, the Bank of Japan avoids a shock and Mercedes-Benz tumbles amid China woes. Here's what traders are talking about. — David Goodman Want to receive this newsletter in Spanish? Sign up to get the Five Things: Spanish Edition newsletter. As the dust settles on the Federal Reserve's big interest rate cut this week, traders are starting to wonder what is next. That means some of the euphoria that followed Wednesday's move is starting to ebb, leaving stocks with declines in European equities and US futures, contrasting with gains in Asia. Meanwhile, Bank of America's Michael Hartnett warned the rally since the decision is stoking the risk of a bubble, making bonds and gold an attractive hedge against any recession or renewed inflation. After a week of central bank fireworks, the Bank of Japan rounded things off a quiet note, keeping policy unchanged and avoiding a repetition of the market meltdown that followed its July rate hike. The immediate market reaction was muted this time, with stocks maintaining their gains and only a relatively small strengthening of the yen after the BOJ kept the path open for continuing to raise borrowing costs in the coming months. Following Governor Kazuo Ueda's presser, where he seemed to suggest there's a little more time to pause, the yen weakened. Away from central banks, Mercedes-Benz was in the spotlight after the luxury-car maker warned on profit over sluggish sales in China. Mercedes shares fell as much as 8.4%, the stock's steepest intraday drop since June 2020 and taking its decline this year to 12%. Chief Executive Officer Ola Källenius pledged he'll do whatever it takes to bolster returns, adding that this includes a sales offensive in China with new products. FedEx also looks to be in for a rough day, with shares tumbling 12% in premarket trading after the parcel carrier said its business would slow in the year ahead and reported a lower-than-expected quarterly profit. In a warning sign about the direction of the US economy, FedEx said it saw increasingly price-sensitive customers downgrading to slower and cheaper shipping options during its latest quarter. Nike shares are heading in other direction after the company ousted beleaguered Chief Executive Officer John Donahoe, bringing longtime executive Elliott Hill out of retirement. Nike shares jumped as much as 7.4% in pre-market trading. The stock has tumbled 25% this year as the sneaker giant struggled with falling sales and customer defections to upstart athletic brands such as On and Hoka, as well as to its more established competitors. Donahoe has largely been the face of the downfall. This is what's caught our eye over the past 24 hours. This week marked a big new monetary era that -- in theory –- offers fresh fuel for speculative spirits that have run rampant on Wall Street all year. But have traders already had their fun? Heading into Wednesday's widely anticipated easing cycle, bond traders had defied economists' forecasts for a 25-basis-point cut in interest rates, pricing in a larger reduction. Two-year Treasury yields, among the most sensitive to policy changes, touched a two-year low approaching 3.5%, down from 5% in April. In the equity market, appetite for risk has been revived in recent months in anticipation of lower borrowing costs. Traders have flocked to leveraged stocks such as small caps, betting sustained economic growth will breathe life into the rate-sensitive corners of the market. Jerome Powell's decision, at one level, has lent support to bulls wagering on a rare but benign economic outcome after the Fed's two-year inflation-tightening campaign: a soft landing. It also validates the trillion-dollar cross-asset rally in the runup to the decision. "Now that the Fed is stimulating the economy, the hard-landing crowd should disperse," said Ed Yardeni of Yardeni Research. Yet the post-Fed market reactions showed the path forward is less clear. Both bond and stocks erased their intraday gains following Wednesday's policy decision. While stocks rebounded in style Thursday, technology megacaps — a cohort that investors have tended to favor during growth angst in recent years — regained leadership. Meanwhile, two-year Treasury yields were stuck near 3.6% and 10-year rates perked up to a two-week high. Sure, nothing moves in a straight line and the last two sessions may be a pause until investors start buying yield-sensitive investments again. But there remains lingering tentativeness among investors. While a soft landing has become the consensus, economists at big banks are split on how fast the Fed will cut rates. With the S&P 500 at an all-time high and bond traders baking in more aggressive easing for 2025 than central bankers, some pros are betting that the shift in monetary policy is already pretty much reflected in financial markets. "We already saw bond markets largely pre-empt the Fed's rate cut and as such the upside for bond duration was limited after the fact," said Naomi Fink, Nikko Asset Management's chief global strategist. "There could be similar limited short-term upside when the Fed acts once again." Lu Wang is a cross-asset reporter in New York. Like Bloomberg's Five Things? Subscribe for unlimited access to trusted, data-based journalism in 120 countries around the world and gain expert analysis from exclusive daily newsletters, The Bloomberg Open and The Bloomberg Close. | 
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