Dow and Russell Reverse into Gains Despite the Fed’s Hawkish Cut: Oct. 30, 2025

Bearish winds dominated markets this morning as yesterday’s hawkish cut was paired with lackluster Meta and Microsoft earnings reports, which countered optimism regarding trade progress that was forged during the largely awaited meeting of Presidents Trump and Xi. But investors quickly bought dips in the Dow Jones Industrial Average and the Russell 2000 indices, although concerns that large AI investments may not deliver buoyant returns weighed on the tech-heavy Nasdaq 100 and S&P 500 gauges. The bullish intraday recovery in cyclically oriented equities is emblematic of strengthening growth prospects following the truce between Washington and Beijing. Robust activity has been driving up cost pressures in discretionary services, which is a significant reason why Chair Powell quelled the enthusiasm of Treasury bulls after alluding that a December reduction is not in the bag. The yield curve is ascending modestly in bear-flattening fashion led by the monetary policy sensitive shorter tenors, and the greenback is advancing as a result of widening differentials among central banks and levitating expectations of a reaccelerating cycle. The commodity complex is climbing overall; however, copper and lumber are softening as tighter financial conditions cloud the outlooks for manufacturing and construction. Prices of volatility protection instruments are falling due to weakening hedging demand.

Treasury Rally Poised to Reverse

This year’s rally in Treasuries has been significant in light of robust growth performance and above-target inflation being offset by tumbling term premiums, as tariff revenues have alleviated a challenging fiscal situation on Capitol Hill. Yields are poised to climb from here, though, following the hawkish Powell presser and the Beijing-Washington truce. With rates ascending in the next few weeks, corporate earnings must be terrific in aggregate for stocks to advance much more into Christmas. Loftier costs of capital pose a challenge to valuation expansion, since risk premiums begin to dwindle as a result of tighter financial conditions. Still, there are solid reasons to believe that profitability will remain buoyant, especially as the benefits of milder regulations, lighter taxation, subdued energy expenses and a pro-business political environment are set to bolster bottom lines more meaningfully as we turn the calendar. Investors could price in more of 2026’s prospects now, but pricier fixed income narrows that path.

International Roundup

European Policymakers Maintain Key Interest Rate

The European Central Bank kept its deposit rate unchanged at 2%. In announcing the decisions, ECB President Christine Lagarde said risks from global trading turmoil and the Isreal-Palestinian conflict are easing while some indicators point to inflation stabilizing. Underlying inflation, she said, appears to be consistent with the bank’s 2% goal. She also said monetary policy is currently in a good place. Nevertheless, trade risks are still a factor despite the European Union (EU) forging a trade deal with the US, and the outlook for price pressures is highly uncertain.

As Third Quarter GDP Surpasses Estimates

Third-quarter gross domestic product grew 0.2% quarter over quarter (q/q) and 1.3% year over year (y/y) in the European Union, (EU) exceeding estimates of 0.1% and 1.2%. While the quarterly pace accelerated modestly from 0.1% in the second quarter, the y/y result slowed from 1.5%, according to Eurostat. Germany, a highly industrialized exporter that has suffered from higher import taxes imposed by the US, benefited from increased manufacturing of defense products and investments in its aging railroad system. This helped halt its economic contraction with the -0.2% q/q second-quarter print improving to a flat result for the recent quarter. Sweden and Portugal were the fastest growing economies, expanding 1.1% and 0.8%. France served as a tailwind as well.

Economic Sentiment Improves

The European Union Economic Sentiment Indicator, which covers both businesses and consumers, climbed from 95.6 in September to 96.8 this month while a gauge of employers’ expectations for hiring advanced from 97.1 to 97.7.

The results show that employment plans and sentiment are moving closer to the 100 level that marks the long-term average. Sentiment was roughly unchanged in the services sector, but it improved among consumers, industry, retail trade and construction. While consumers’ intentions of making major purchases weakened, their outlook of their financial conditions improved. Regarding hiring, the services and construction sectors showed the largest gain in expectations for expanding their workforces.

Hong Kong Bankers Trim Base Rate

The Hong Kong Monetary Authority (HKMA), in keeping with its tradition of following the US Federal Reserve, slashed its base rate 25 bps to 4.25%. The 4.25% level is used for computing the discount rates for the organization’s repurchase operations.

Australia Trading Prices Decline

Australia’s export prices slipped 0.9% q/q during the third quarter, a moderation from the 4.5% drop in the preceding period. Meanwhile, imports became 0.4% less costly, a bigger decline than the economist consensus estimate for a 0.3% drop but less severe than the second-quarter 0.8% decline. For items shipped abroad, lower oil prices caused the gas category to slip 5.2%. The coal, coke and briquettes group was down 1.5% while metal ores and scrap metal sank 0.5%. Non-monetary gold and the meat and meat preparations category, conversely, were 3.2% and 2.5% higher. Among imports, telecommunications equipment, general industrial machinery and coffee, tea and cocoa prices descended 3.4%, 2.6% and 9.2%. Fertilizers were 10.4% more costly, a result of strong global demand, while non-monetary gold and petroleum rose 3.1% and 3.5%.

Japan Holds Key Rate Steady

The Bank of Japan held its key interest rate steady at 0.50% yesterday with two policymakers who support an increase dissenting. However, Governor Kazuo Ueda implied that a hike is possible in the near future as the central bank waits for more information on domestic wages. Ueda, in a press conference, also said the organization is evaluating the potential for foreign economies to weaken. Japan’s economy is highly dependent on exports. The decision to maintain the current benchmark level comes shortly after Sanae Takaichi, and advocate of monetary easing, secured the prime minister position.