Markets in Europe and Asia shot higher on Thursday after the Federal Reserve kicked off its efforts to prevent a recession in the U.S. with a bigger-than-usual cut to interest rates.
U.S. futures were higher after a lackluster response on Wall Street to the Fed’s move the day before. The future for the S&P 500 jumped 1.3% and that for the Dow Jones Industrial Average was up 0.8%.
Germany’s DAX added 0.8% to 18,861.88 and the CAC 40 in Paris advanced 1.3% to 7,541.50. In London, the FTSE 100 gained 0.9% to 8,326.93.
In Asian trading, Tokyo’s Nikkei 225 index rose 2.1% to 37,155.33, lifted by major export manufacturers’ shares. Toyota Motor Corp. surged 5.1%, Sony Group Corp. added 2.9% and Hitachi Ltd. climbed 5.8%.
Hong Kong’s Hang Seng gained 2% to 18,013.16.
The Shanghai Composite index climbed 0.7% to 2,736.02, while Taiwan’s Taiex closed 1.7% higher.
South Korea’s Kospi rose 0.2% to 2,580.80.
The Bank of Japan and the Bank of England are also holding monetary policy meetings this week. Neither central bank is expected to move on rates, though the language of what the officials say could be an indicator of later moves and still influence markets.
Because the Fed’s half-percentage point rate cut was so well telegraphed, markets had already climbed in anticipation. So, Wall Street’s reactions to the 180-degree turn on its policy rate were relatively muted.
“Markets barely reacted to the Fed’s 50 (basis point) rate cut, on balance, and our base case is that further cuts won’t move the needle too much either,” Thomas Mathews of Capital Economics said in a commentary.
It was the first cut to the federal funds rate in over four years, ending a stretch where the Fed kept rates at a two-decade high to slow the U.S. economy enough to stifle the worst inflation in generations.
On Wednesday, the S&P 500 slipped 0.3% and the Dow dipped 0.2%. The Nasdaq composite lost 0.3%.
The Fed’s move may help financial markets both by easing the brakes on the economy, which has been slowing under the weight of higher rates and by boosting prices for all kinds of investments. Besides stocks, gold and bond prices had already rallied in recent months on expectations that rate cuts were coming.
Now that inflation has eased significantly from its peak two summers ago and appears to be heading toward 2%, the Fed says it it can turn more of its attention toward protecting the slowing job market and overall economy.
“The time to support the labor market is when it’s strong and not when you begin to see the layoffs,” Fed Chair Jerome Powell said in a press conference. “That’s the situation we’re in.”
Some critics say the Federal Reserve may have already kept interest rates too high for too long, but Powell said that “We don’t think we’re behind.”
“The focus has now decisively shifted to the labor market, and there’s a sense that the Fed is trying to strike a better balance between jobs and inflation,” Stephen Innes of SPI Asset Management
Like stock prices, Treasury yields wavered up and down repeatedly immediately after the Fed announced its cut and published its projections.
Trading in Tupperware Brands remained halted after the company filed for Chapter 11 bankruptcy protection. Its stock has been sinking, down to 51 cents, since a mini-revival early in the pandemic sent its stock above $30.
In other dealings, U.S. benchmark crude oil gained 98 cents to $70.86 per barrel in electronic trading on the New York Mercantile Exchange.
Brent crude, the international standard, was up 97 cents at $74.58 per barrel.
The dollar rose to 142.88 Japanese yen from 142.29 yen. The euro rose to $1.1151 from $1.1120.