| Good morning. US stocks hit fresh highs. The Bank of England aims for a gradual approach. Headwinds face a booming private credit market. Here's what's moving markets. —Isabelle Lee Wall Street traders betting the Federal Reserve will be able to engineer a soft landing spurred a rally in riskier corners of the market, with stocks hitting all-time highs. The S&P 500 notched its 39th record this year, extending gains to about 20%. Treasuries were mixed, with shorter-maturities outperforming longer ones. For now, banks are divided over how fast and deep the Fed will cut rates. Hours after the Fed's 50 basis point reduction, economists at Goldman Sachs revised their forecast to show quarter-point decreases at every meeting from November through June. Peers at JPMorgan, who had correctly predicted this week's shift, see another half-point cut in November, depending on the labor market. The Bank of England warned it won't rush in easing monetary policy, deciding against a second consecutive cut in borrowing costs as it awaits further signs inflationary pressures have subsided. The BOE voted 8-1 to keep rates steady at 5%, a caution decision in contrast with the Fed's move just a day before. While the decision was in line with expectations, it pushed the pound to its strongest level against the dollar since March 2022. Private credit more than doubled in size from 2019 thanks to rate hikes that made its floating-rate debt more attractive. Now, a Fed rate cut is adding to the headwinds hampering the breakneck growth of the $1.7 trillion industry. Lower benchmark rates will make fixed income more attractive to investors than variable rates. That's set to become a more pressing issue after the Fed projected further easing later this year. The other big potential threat is a US recession. A soft landing for the economy is the central case, but a deeper slowdown would spell trouble, reducing the appetite for deals and increasing the risk of borrowers failing to repay. The European Union and China agreed to intensify discussions as they seek ways to avert looming tariffs on electric cars ahead of a deadline that's only days away. The EU made clear to China that it will continue its formal investigation into unfair subsidies for EVs made in China, but the "two sides agreed to take a renewed look at price undertakings," a European Commission spokesperson said. China's Commerce Ministry said both sides will continue to discuss a possible price-commitment agreement and are committed to reaching an accord. A slew of data is set to be published in the region Friday, beginning with the Bank of Japan's monetary policy decision. The BOJ is likely to hold its rate at 0.25% and assess whether conditions are falling into place for another hike this year. Hot wages and Tokyo CPI data point to a hike sooner rather than later. In China, traders can expect loan prime rates. China's commercial banks are likely to keep rates unchanged for a second straight month, after a 10-basis point cut in July. Elsewhere, there's euro area consumer confidence and Canada retail sales. Here's what caught our eye over the past 24 hours: - Private equity joins push to take Latin dance parties global
- TD names Chun CEO as Masrani to retire amid US probe
- New Zealand's Luxon eyes economic rebound after first year
- Sri Lanka reaches restructuring deal days before election
- Exploding devices death toll rises as Israel ups war talk
- Fed's dovish capitulation spurs winners across ETF world
- Coffee drinking on the go rebounds as more return to office
In the end, it was the Asian markets that got it right. After the Federal Reserve cut rates by 50 basis points on Wednesday, stocks in the US actually sold off. And government bonds did too, with longer maturities doing the worst. But when markets opened yesterday in Asia, the 'real' market tone came into view, with the cut looking like an unalloyed positive for stocks (and still a bit of a headwind for government bonds). This could continue. Here's the thing. The Federal Reserve's data-dependent approach causes it to continually lag crucial events in a rapidly developing post-pandemic US economy. Just one look at the Citi Economic Surprise Index for the US tells you everything. It bottomed in mid-July, more than two weeks before the July FOMC meeting, rallying strongly into that session. With the data still surprising to the downside, that was the time to cut preemptively as several Fed officials wanted to do, according to the meeting minutes. But since then, the data have started surprising more to the upside. On Thursday, for example, both initial and continuing US jobless claims dropped. The upturn in the data strongly suggests that the Fed's cut will do more to push equities to repeated new highs and keep corporate bond spreads tight than prevent a recession. That should contribute to government bond weakness as concerns of a recession start to recede. Equities, after Wednesday's initial move lower, closed Thursday at an all-time high -- a pattern that can continue. Ed Harrison writes the Everything Risk newsletter. Follow him on X at @edwardnh. | 
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