Global shares rally after jumbo Fed reduce | USAEMALL.com

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Global stocks rallied on Thursday as investors bet that the Federal Reserve’s jumbo half-point rate cut would help deliver a soft landing for the world’s largest economy.

In Europe, the Stoxx Europe 600 index rose 1 per cent, while the Cac 40 in Paris was up 1.3 per cent and the FTSE 100 up 0.8 per cent.

Futures indicated that US stocks would rebound on Thursday after falling in the previous session following the Fed decision. Contracts tracking the S&P 500 were up 1.3 per cent and those tracking the tech-heavy Nasdaq 100 rose 1.7 per cent.

Japanese stocks also rose, with the Topix up 2 per cent, led by tech stocks and exporters.

Before Wednesday’s cut, US rates had been at their highest since 2001, part of the Fed’s bid to bring down inflation from the biggest surge in a generation.

But with consumer price inflation now at 2.5 per cent, close to the Fed’s 2 per cent target, the central bank has signalled more reductions to come.

Strategists at JPMorgan said comments by Fed chair Jay Powell and officials’ revised interest rate expectations reaffirmed a “Goldilocks narrative and should be viewed as positive for the economy and earnings”.

Yields on interest rate-sensitive two-year German government bonds — the eurozone’s de facto benchmark — fell 0.03 percentage points to 2.24 per cent while two-year gilt yields in the UK fell 0.02 percentage points to 3.89 per cent.  

In the latest “dot plot” of officials’ forecasts, most expected the rate to fall another half-percentage point by the end of the year, to 4.25 per cent to 4.5 per cent. However futures markets were pricing in that the Fed would make nearly three-quarters of a percentage point of cuts.

Sterling hit its highest level against the dollar since March 2022 in the aftermath of the Fed’s decision before later retreating. Investors expect the Bank of England, which cut rates last month, to keep UK borrowing costs on hold at a meeting today.

The yen strengthened to ¥142.5 against the dollar on Thursday after falling to ¥144 earlier in the day. Traders expect the Bank of Japan to hold rates steady at a policy meeting concluding on Friday.

The Australian dollar, Indonesian rupiah and Chinese renminbi also strengthened against the greenback but the dollar index, which tracks the US currency against a basket of peers, was flat.

Economists maintain that lower US interest rates can benefit emerging markets by reducing the cost of dollar financing and other borrowing costs.

Lower rates on US bonds can also often make assets from other countries more attractive.

“By slashing real rates and real returns on US dollar bonds, relatively speaking emerging countries are going to do better,” said Trinh Nguyen, senior emerging Asia economist at Natixis.