Oracle's Earnings Miss Sparks Stock Slump, While Fed's Rate Cut Boosts Bonds and Euro
The tech giant Oracle's disappointing earnings report sent shockwaves through the market, causing its shares to plummet by 11% after hours. This earnings miss, coupled with a warning about profitability, had a ripple effect on AI-related stocks in Tokyo, where the Nikkei index took a hit. The broader market sentiment was dampened, with S&P 500 and Nasdaq futures experiencing declines.
However, the Federal Reserve's decision to cut interest rates by 25 basis points provided a counterbalance. Fed Chair Jerome Powell's balanced outlook at the news conference calmed market nerves, leading to a rally on Wall Street. The S&P 500 index gained 0.7%, and interest rate futures priced in at least two rate cuts for next year, which weakened the dollar and boosted the euro, pushing it above $1.17.
Bonds received a further boost as the Fed announced its intention to buy short-term Treasuries, supporting liquidity. This move helped lower benchmark 10-year yields and two-year U.S. yields, easing the volatile money markets. The dollar's decline had a knock-on effect on oil prices, which eased after an earlier gain due to the U.S. seizing a sanctioned oil tanker off Venezuela's coast.
In the foreign exchange markets, the Fed's rate cut and policymakers' projections opened the door for dollar selling. The yen strengthened, rising to 155.62 per dollar, while the euro hit a two-month high of $1.1707, benefiting from European Central Bank President Christine Lagarde's comments on potential growth upgrades.
Analysts at ING suggest that the next significant market cue will be the November non-farm payrolls release, which could influence the market's pricing of further rate cuts. With the Fed event risk now out of the way, the euro-dollar pair might see a run-up to 1.1800, according to the analysts' note.
