Global equities rose 0.75 percentage point in the wake of the US Federal Reserve’s second rate hike in two months, as hopes that the pace of monetary tightening may soon be slowing boosted investor sentiment.
The Federal Funds Rate’s jump to a range of 2.25% to 2.5% was widely expected, but stocks rose after Fed Chair Jay Powell commented that the US Federal Reserve was open to the possibility of smaller rate hikes.
“At some point it will be appropriate to slow down. . . We could make another unusually large raise [in September] but that’s not a decision we’ve made at all, we’ll be guided by the data,” Powell said.
Global equities have tumbled this year as central banks turned to counter rising inflation with sharp interest rate hikes that economists have warned could weigh on growth and trigger a recession. The MSCI All-World index of global equities is down more than 17 percent year-to-date as central banks in Europe and Asia joined the Fed in raising interest rates.
But Powell’s comments on Wednesday gave sentiment a boost on Wall Street, where the benchmark S&P 500 index rallied to end the day 2.6 percent higher and the tech-focused Nasdaq Composite rose 4.1 percent percent, marking its largest daily gain in more than two years.
Traders and strategists said Powell’s suggestion that monetary policy decisions be data dependent hinted at a reduced likelihood of large rate hikes in the future.
“This implies less dramatic increases over the next three [Fed] sessions than in the last two,” said Tai Hui, market strategist at JPMorgan Asset Management, adding that recent readings on “inflation and labor market dynamics . . . are currently signaling the need for a more cautious approach to next year.”
Positive earnings reports from major tech companies also helped boost market confidence on Wednesday, with shares of Google parent Alphabet and Microsoft rising 7.7 and 6.7 percent, respectively.
Gains in Asian stock markets were more muted, with China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks up 0.7 percent on Thursday and South Korea’s Kospi up 0.9 percent. Japan’s benchmark Topix was unchanged.
Recommended
But the prospect of slower Fed rate hikes, which have prompted global investors to dump many Asian currencies in favor of the dollar, helped strengthen exchange rates in the region.
The Japanese yen rose 1.1 percent against the greenback to about 135 yen, while the Chinese renminbi rose 0.2 percent to 6.745 Rmb per dollar.
Futures markets later in the day pointed to a modest gain in European equities, with the FTSE 100 opening up 0.2 percent, while the S&P 500 was down 0.2 percent.
Comments are closed.