Global stock markets made solid gains this week, with investors reacting positively to the sharp cut in interest rates in the United States.
The Federal Reserve decided on Wednesday to reduce borrowing costs by 0.5% rather than the 0.25% many analysts had expected – a move which could have been seen as an admission that officials had waited too long to relax monetary policy. However, Fed chair, Jerome Powell, was able to calm nerves with comments indicating the US economy was on track to achieve the “soft landing” that markets have long hoped for. Elsewhere, oil and commodity prices rallied towards the back of the week following an escalation of the conflict in the Middle East, as well as disruption to the supply of crude caused by recent extreme weather in the Gulf of Mexico.
United States
On Wall Street, the Dow Jones Industrial Average ended trading on Thursday 1.5% up for the week so far, with the S&P 500 gaining 1.6%. Both indexes have recorded all-time highs this week thanks to the cut in interest rates and further signs of economic resilience in the US. Data published on Tuesday showed a rise in industrial output in August, as well as stronger retail sales than expected. Powell rejected claims that the cut had been politically motivated to provide Democrats with a pre-election boost, but he added that the path of any future rate reductions would likely be more measured.
UK
In the UK, the FTSE 100 closed on Thursday 0.7% up for the week so far after the Bank of England chose to leave interest rates unchanged. Combined with the large rate cut in the US, this led to gains for sterling against the dollar and caused major UK stocks to underperform against their international counterparts. Inflation in August remained at 2.2%, and policymakers are widely expected to make their next rate reduction in November. A report highlighted the damaging impact Brexit has had on trade between Britain and the European Union, while the OECD warned that the government should take decisive action to address the state of the UK’s public finances in next month’s budget.
Europe
In Frankfurt, the DAX index ended Thursday’s session up 1.6% for the week, while France’s CAC 40 gained 2% as markets in Europe welcomed the Fed’s decisive action and signs of robust health in the US economy. Closer to home, there was a further decline in investor confidence in Germany, while the head of the Bundesbank warned that eurozone inflation remained uncomfortably high. Carmakers reported a slump in sales of new electric vehicles across Europe and questioned whether they would be able to meet the EU’s decarbonisation targets.
Asia
Following a difficult start to the week, Asian markets also reacted positively to the relaxation of monetary policy in the US. The Hang Seng index in Hong Kong gained 3.7% as investors pinned their hopes on fresh stimulus measures from the Chinese government following disappointing economic data issued last weekend. Japan’s Nikkei 225 index of leading shares, meanwhile, advanced 1.6%, with share prices recovering on Thursday after earlier falls were sparked by a call from Bank of Japan officials for further interest rate rises.
September 13 | September 19 | Change (%) | |
|---|---|---|---|
FTSE 100 | 8273.1 | 8328.7 | 0.7 |
FTSE 250 | 20895.4 | 21162.7 | 1.3 |
S&P 500 | 5626.0 | 5713.6 | 1.6 |
Dow Jones | 41393.8 | 42025.2 | 1.5 |
DAX | 18699.4 | 19000.3 | 1.6 |
CAC 40 | 7465.3 | 7615.4 | 2.0 |
ACWI | 826.9 | 839.5 | 1.5 |
Hong Kong Hang Seng | 17369.1 | 18013.2 | 3.7 |
Nikkei 225 | 36581.8 | 37155.3 | 1.6 |
Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, data as at 19 September 2024.
