A look at the day ahead in U.S. and global markets from Mike Dolan

Judged by the sharp drop in the dollar, European central banks may find it hard to match the dovishness from the Federal Reserve that's seen global interest rates plummet overnight.

The European Central Bank and Bank of England now have to follow the fireworks, where the Fed's policymakers catapulted bond and stocks higher over the past 24 hours by indicating that as much as 75 basis points of policy rate cuts were coming down the pike next year.

Even though Fed boss Jerome Powell publicly walked the cautious line of not declaring victory yet on inflation and refusing to rule out another rate hike if necessary - the median of Fed policymaker projections for rates in 2024 showed markets had not been too far from Fed thinking after all.

A wide dispersion of Fed views on the policymaking Open Market Committee showed some uncertainty still, but the direction of travel was clear and a majority expect three quarter point cuts or more next year.

Earlier in the day, news of a drop in annual "core" producer price inflation to 2.0% last month showed the backdrop of disinflationary process setting up the "pivot".

Wall St boomed and the wave of positivity swept around the world through the night.

The S&P500 had its best day in a month and surged more than 1% to within 2% of record highs. The Dow Jones Industrial Average clocked a record close and the Nasdaq 100 hit its highest since 2021. And futures pushed higher again ahead of Thursday's open.

But the real action was in the rates market, where Fed futures now see the first quarter-point cut in March, two cuts by May and 150 bps of easing by yearend. Two-year Treasury yields plunged almost 50 bps from Wednesday's peak to hit their lowest since May, while 10-year yields plunged below 4% for the first time since early August to as low as 3.93%.

Curiously, and perhaps showing that markets think the Fed may be moving too fast, inflation expectations embedded in the two-year inflation-protected securities rose to their highest since June at 2.3%.