Global stocks rally after Fed’s big rate cut

September 19, 2024 (MLN): Stocks rallied across the globe on expectations the Federal Reserve’s half-percentage-point interest-rate cut will guide the world’s largest economy toward a soft landing, Bloomberg reported.

Europe’s Stoxx 600 index gained more than 1%. US equity futures soared, with Nasdaq 100 contracts jumping 1.7%, fueled by bets of a resilient American economy and lower borrowing costs.

The dollar weakened, with an index of Asian currencies rising to the strongest level in more than a year. Treasuries steadied after falling on bets the aggressive move to start the cutting cycle will mean the Fed will need to lower interest rates less in the long run.

The Fed’s move has reinforced expectations that the US economy will avoid a downturn.

“The Fed’s jumbo rate cut shows a clear intention of the Fed to support the US economy and aim for a ‘soft landing,’” Nomura Holdings Inc. strategists including Chetan Seth wrote in a note. “So long as the US manages to avoid a recession in the months ahead, the Fed pre-emptively cutting rates should be generally supportive of stocks.”

The Fed’s first reduction in more than four years was accompanied by projections indicating an additional 50 basis points of cuts across the remaining two policy meetings this year.

Fed Chair Jerome Powell said launching the unwind of the central bank’s historic tightening campaign with a big move while the US economy is still strong would help limit the chances of a downturn.

“The Fed is embarking on what I see as a series of rate cuts,” said Stephen Jen, the chief executive at Eurizon SLJ Capital.

The size of the initial move “won’t make a big difference as equities should soon stabilize, bond yields will likely drift lower for good reasons — like disinflation and not a hard landing. The dollar should continue to weaken against a broad range of currencies,” he said.

Meanwhile, the Bank of England is likely to refrain from cutting rates for a second consecutive meeting on Thursday, maintaining a patient approach to reversing the most aggressive policy tightening in decades.

Governor Andrew Bailey may provide investors more hints that the central bank will cut rates again in November.

In Asia, a gauge of regional stocks rallied by the most in a week. The Hong Kong Monetary Authority lowered its base interest rate for the first time in four years following the Fed’s cut.

HSBC Holdings Plc reduced its key benchmark rate in Hong Kong for the first time since 2019, a move likely to hit margins while bringing relief to homeowners and borrowers in the Asian financial hub.

Still on the monetary policy decision front, Bank of Japan Governor Kazuo Ueda faces the delicate task on Friday of making sure investors are firmly aware of rate hikes to come, without ruffling markets even as he stands pat on policy.

Gold was steady following a tumultuous session in which it touched a record high after the Fed rate cut.

Oil rose as a risk-on tone swept across wider financial markets following the Fed’s move, while traders monitored escalating tensions in the Middle East.

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