U.S. Markets Hit Record Highs Following Fed Rate Cut
The U.S. stock markets soared on Thursday, propelled by the Federal Reserve’s decision to cut interest rates by 50 basis points, its first rate reduction in over four years. The S&P 500 surged past 5,700, reaching a historic milestone, while the Dow Jones industrial average climbed by more than 500 points. The rate cut significantly boosted sectors such as technology, automakers, and homebuilders, which are particularly sensitive to borrowing costs.
In addition to the U.S. markets, European indices also saw notable gains, with investors flocking to growth sectors in anticipation of favorable economic conditions. The bond market experienced a modest increase in Treasury yields, while market volatility dipped, further encouraging investor confidence.
Asian Markets Extend Rally Amid U.S. Rate Cut
Nikkei Leads Gains, Chinese Shares Lag
On Friday, Asian markets continued their upward momentum, driven by the optimism surrounding the U.S. Federal Reserve’s interest rate cut. Japan’s Nikkei 225 led the region with a 1.8% rise, benefiting from the broader global rally. However, Chinese equities lagged behind as the People’s Bank of China chose not to follow the Fed’s lead, keeping rates unchanged. In contrast, Hong Kong’s Hang Seng Index gained 1.3%, supported by a rally in technology stocks, while South Korea’s KOSPI posted a 0.8% increase.
Mixed Sentiment in Early European and U.S. Markets
Early trading in European and U.S. equity markets on Friday reflected mixed sentiment. While the enthusiasm from the Fed’s rate cut was palpable, concerns over weak corporate earnings and broader global economic uncertainties created cautious investor sentiment.
Oil Prices Retreat After Profit-Taking, but Weekly Gains Remain Intact
Oil prices saw a slight decline in Asian trading on Friday as traders cashed in profits. Despite this, crude oil was still on track for a weekly gain, buoyed by the Federal Reserve’s rate cut and persistent tensions in the Middle East. However, tempered demand from China and the U.S. capped further price increases, despite the week’s overall recovery in the commodity.
Bank of Japan Holds Rates, Yen Strengthens
The Bank of Japan kept its interest rates steady at 0.25%, in line with market expectations. The central bank forecast continued economic growth and rising inflation but acknowledged “high uncertainties” in global economic activity. Additionally, the bank warned that volatility in foreign exchange markets could impact local prices, leading to a slight strengthening of the yen against the dollar following the announcement.
U.S. Jobless Claims Fall, Labour Market Shows Resilience
U.S. jobless claims fell to 219,000 last week, down from the forecasted 230,000, marking a four-month low. This decline suggests that American employers are slowing their hiring rather than laying off workers in large numbers, indicating a cooling labour market that remains resilient. The moderation in job growth could help ease wage pressures, contributing to a reduction in services inflation, aligning with the Federal Reserve’s “soft landing” narrative for the U.S. economy.
Bank of England Maintains Rate at 5%, Reduces Bond Holdings
The Bank of England kept its benchmark interest rate steady at 5% on Thursday, following a 25-basis-point rate cut in August. Inflation rose to 2.2% in August and is expected to reach 2.5% later this year. Additionally, the BoE announced plans to reduce its UK government bond holdings by £100 billion over the next year, signaling a cautious approach to monetary tightening.
Corporate Updates: FedEx, Nike, Airbnb, and More
FedEx Experiences Profit Drop, Downgrades Revenue Forecast
FedEx reported a substantial decline in quarterly profits, attributing the drop to customers opting for cheaper shipping alternatives. The company also revised its full-year revenue outlook downward. Weaker industrial demand and restructuring challenges were cited as primary concerns.
Nike Names New CEO, Shares Surge 8%
Nike announced that Elliott Hill will replace John Donahoe as CEO, effective October 14th. Hill’s promotion aims to rejuvenate sales and counter intensifying competition. Following the announcement, Nike’s shares surged by 8%, adding approximately $11 billion to its market capitalization.
Airbnb Expands Long-Term Rental Business
Airbnb is shifting focus toward long-term rentals, with stays of 28 days or more now making up 17% to 18% of its bookings, compared to 13% to 14% before the pandemic. This strategic pivot comes amid increasing scrutiny of short-term rentals in major cities like Athens and Barcelona.
Market Outlook and Analyst Updates
Mobileye Shares Soar After Intel’s Decision
Mobileye shares surged by 15% on Thursday after Intel announced that it has no plans to sell its 88% stake in the company, contradicting earlier reports of potential divestment. The news coincides with Intel’s broader $10 billion cost-cutting plan, which also includes securing a $3 billion investment from the U.S. government.
UBS Cautions Against Potential Market Bubble
Analysts at UBS have warned that aggressive rate cuts by the Federal Reserve could lead to an equity market bubble. Historically, markets have gained an average of 4% in the months following rate cuts, but the risk of a weaker economy could push rates even lower, negatively impacting the U.S. dollar.
Conclusion
The global market landscape continues to evolve with central bank decisions and corporate earnings shaping investor sentiment. While interest rate cuts provide a boost to equities and select sectors, caution remains due to underlying economic uncertainties and corporate challenges.
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