Markets across Europe and Asia experienced significant gains on Thursday, buoyed by the Federal Reserve’s unexpected decision to implement a larger-than-usual interest rate cut aimed at preventing a recession in the United States.
U.S. futures reflected this optimism, recovering from a subdued response to the Fed’s announcement the previous day. The futures for the S&P 500 surged 1.3%, while the Dow Jones Industrial Average rose by 0.8%.
In Europe, Germany’s DAX index climbed 0.8% to 18,861.88, and France’s CAC 40 advanced 1.3% to 7,541.50. London’s FTSE 100 also enjoyed a boost, gaining 0.9% to reach 8,326.93.
Asian markets mirrored this positive trend, with Tokyo’s Nikkei 225 index soaring 2.1% to 37,155.33, driven by strong performances from major exporters. Shares of Toyota Motor Corp. jumped 5.1%, while Sony Group Corp. and Hitachi Ltd. saw increases of 2.9% and 5.8%, respectively. Hong Kong’s Hang Seng index rose 2% to 18,013.16, and the Shanghai Composite index edged up 0.7% to 2,736.02. Taiwan’s Taiex finished 1.7% higher, while South Korea’s Kospi saw a modest gain of 0.2% to 2,580.80.
Both the Bank of Japan and the Bank of England are also holding monetary policy meetings this week. While no rate changes are expected, their commentary may influence future market movements.
The Fed’s half-percentage point rate cut was widely anticipated, leading to preemptive market gains. As a result, Wall Street’s reactions were relatively muted. “Markets barely reacted to the Fed’s 50 basis point rate cut, and our base case is that further cuts won’t move the needle too much either,” noted Thomas Mathews of Capital Economics.
This marked the first reduction in the federal funds rate in over four years, concluding a period during which rates remained at a two-decade high in an effort to combat rampant inflation.
On Wednesday, following the Fed’s announcement, the S&P 500 declined by 0.3%, while the Dow and Nasdaq composite both dipped by 0.2% and 0.3%, respectively.
The Fed’s decision is expected to bolster financial markets by alleviating the pressure on the slowing economy and enhancing investment values across various asset classes, including stocks, gold, and bonds, which had already rallied in anticipation of the rate cut.
With inflation rates significantly reduced from their peak two summers ago and trending toward the target of 2%, the Fed is now shifting focus to safeguarding the labor market and overall economic stability. “The time to support the labor market is when it’s strong and not when you begin to see the layoffs,” Fed Chair Jerome Powell stated during a press conference.
Some analysts argue that the Federal Reserve may have maintained high interest rates for too long. However, Powell responded, asserting, “We don’t think we’re behind.” Stephen Innes of SPI Asset Management noted that the Fed is striving to find a better balance between job security and inflation control.
In commodities, U.S. benchmark crude oil rose by 98 cents to $70.86 per barrel, while Brent crude, the international standard, increased by 97 cents to $74.58 per barrel. The dollar strengthened against the yen, rising to 142.88 from 142.29, while the euro climbed to $1.1151 from $1.1120.
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