| Good morning. The Fed makes a big rate cut. Stocks and bonds falter. The world braces for the decision's fallout. Here's what's moving markets. Here's what's moving markets. — Kristine Aquino The Federal Reserve lowered its benchmark rate by half a percentage point on Wednesday, in an 11-1 vote. Governor Michelle Bowman dissented — the first dissent by a governor since 2005. A narrow majority — 10 of 19 officials — favored lowering rates by at least an additional half-point over their two remaining 2024 meetings. "This decision reflects our growing confidence that, with an appropriate recalibration of our policy stance, strength in the labor market can be maintained in a context of moderate growth and inflation moving sustainably down to 2%," Fed Chair Jerome Powell said in a press conference following the announcement. While the S&P 500 initially powered to an all-time high after the Fed announcement, Powell's indication that the Fed is in no rush to deliver more big reductions sent stocks lower by the end of the session. Treasury yields climbed across the board, even as traders boosted bets on more rate cuts by year-end. Gold, which briefly climbed to a record above $2,600, pulled back with equities and bonds. "It's impressive that in the classic, 'buy-the-rumor, sell-the-fact' dynamic, the 'fact' of a 50 basis-point cut was still met by selling," according to Ian Lyngen and Vail Hartman at BMO Capital Markets. Traders in Asia will now contend with the ripple effects of the Fed's decision. After Indonesia delivered a surprise quarter-point reduction prior to its US counterpart, all eyes will turn to the outcome of the Bank of Japan's policy meeting on Friday. That's not expected to deliver any changes, which could help keep a lid on volatility in the yen after it reversed losses in the Fed aftermath. Fund managers have also boosted positions in sovereign bonds in Thailand, Indonesia and Malaysia, which are seen as top beneficiaries of a shift in US monetary policy. Meanwhile, oil retreated after two days of gains as concern over the outlook for demand overshadowed rising tensions in the Middle East. Brent crude slipped to trade near $73 a barrel after climbing in the previous two sessions. Those gains came after Iran-backed Hezbollah accused Israel on Tuesday of orchestrating an attack in Lebanon involving exploding pagers, which left a number of people dead and wounded thousands. Money managers are waging a major battle over a wave of as much as $10 trillion coming to the US market over the next decade from banks, insurers and wealthy retail clients. Analysis by McKinsey showed that there will be an estimated $8 trillion to $10 trillion in new US assets up for grabs, a potential 15% increase in the total market up for grabs in North America. While asset managers worldwide collectively managed a record $132 trillion in June — an 8% jump from 2023 — the bulk of the new money went into lower-priced products, with higher-fee strategies either shrinking or stagnating. Here's what caught our eye over the past 24 hours: Initial equity gains in the face of what's historically been an ominous signal -- a bigger-than-expected Fed rate reduction -- and their subsequent reversal suggest that investors are becoming more sensitive to slowdown concerns, even if they stick to their belief in a soft landing. Policymakers estimate the jobless rate will rise more than economists expect, which will have implications for spending, with personal savings also waning. While Powell reiterated that recent data suggests the economy is growing at a solid pace, he also noted that the labor market might be at an inflection point, where less demand would mean more unemployment -- referencing the so-called Beveridge curve which measures the relationship between the two. While a panic would be unjustified for risk assets, stock valuations are still too high for such a softening outlook. For reference, price-to-forward earnings multiples averaged 15 back in 1995-1996 (the period of Greenspan's famous soft landing), and 16.5 since the 1990. They're at 21 today, suggesting plenty of room to the downside. Tatiana Darie writes for Bloomberg's Markets Live blog in New York. Follow her on X at @tatianadariee. Sign up for Hong Kong Edition newsletter to get an insider's guide to the money and people shaking up the Asian finance hub. | 
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