Central bankers in the United States gave global stock markets a major boost this week by suggesting they will start to cut interest rates early in the new year.
Share prices rallied on Wednesday and Thursday after the Federal Reserve confirmed it would leave monetary policy unchanged for the rest of 2023, and Fed Chair Jerome Powell revealed that policymakers currently expected to make as many as three rate cuts in 2024. Investors have been hopeful that looser monetary policy is around the corner and, with latest data showing a further fall in inflation in the US, the Fed now appears confident it can start to unwind its tightening programme.
After their recent slump, oil prices recovered some ground on hopes that lower rates will boost growth around the world next year. However, central banks in Europe struck a more cautious tone on monetary policy and the outlook for inflation than their counterparts in Washington DC.
United States
On Wall Street, the Dow Jones Industrial Average ended trading on Thursday 2.8% up for the week so far, reaching an all-time high with the S&P 500 advancing towards its record peak with a gain of 2.5%. Aside from the prospect of multiple rate cuts in 2024, US markets welcomed data that showed the US economy remained resilient despite the rises in borrowing costs imposed over the past two years. Much of this week’s exuberance is based on the belief that the private sector may be able to emerge relatively unscathed from this period of monetary tightening.
UK
In the UK, the FTSE 100 closed on Thursday 1.3% up for the week so far. Commodities and oil started the week on the back foot due to concerns about growth in China, although crude prices recovered to some extent following the Fed’s announcement. However, stocks in the UK lagged their US counterparts after sterling rose against the dollar, with markets now expecting rate cuts to happen considerably more quickly in America than in Britain.
The Bank of England held rates steady at its meeting on Thursday, but Governor Andrew Bailey warned that there was still work to do to bring inflation under control – indeed, three members of the nine-strong Monetary Policy Committee voted to increase the base rate this week. Meanwhile, UK GDP declined in October and analysts now expect full-year growth figures to undershoot previous forecasts.
Europe
In Frankfurt, the DAX index ended Thursday’s session unchanged for the week, while France’s CAC 40 gained 0.7%. While the European Central Bank’s decision on Thursday to leave rates unchanged was not a surprise, comments from President Christine Lagarde were also much more guarded than those published by the Fed, dashing investors’ hopes of imminent and rapid rate cuts in the eurozone.
Asia
In Asia, the Hang Seng index in Hong Kong gained 0.4%, ending Thursday’s session ahead for the week so far after Wednesday’s rally in the US. Shares in China fell on Monday after recent data showed an unexpected fall in prices in October – the latest sign of a struggling economy. Mainland stock markets slumped to five-year lows after the figures were published. Japan’s Nikkei 225 index of leading shares, meanwhile, advanced 1.2%. Research indicated an improvement in confidence among manufacturers and service sector businesses in the last quarter, although gains made by shares in Tokyo early in the week were partly erased by the strengthening yen on Thursday.
24 November | 30 November | Change (%) | |
|---|---|---|---|
FTSE 100 | 7554.5 | 7649.0 | 1.3 |
FTSE 250 | 18702.0 | 19257.0 | 3.0 |
S&P 500 | 4604.4 | 4719.6 | 2.5 |
Dow Jones | 36247.9 | 37248.4 | 2.8 |
DAX | 16759.2 | 16752.2 | 0.0 |
CAC 40 | 7526.6 | 7575.9 | 0.7 |
ACWI | 698.3 | 716.4 | 2.6 |
Hong Kong Hang Seng | 16334.4 | 16402.2 | 0.4 |
Nikkei 225 | 32307.9 | 32686.3 | 1.2 |
Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, data as at 14 December 2023.
