Markets weekly recap: Risk-on boosted by Fed’s outsized rate cuts
Global stock markets are set for a positive weekly close following the Fed’s jumbo rate cuts. The Bank of England’s hawkish rhetoric has kept the Pound at a two-and-a-half-year high.
Equity markets worldwide are poised for a positive close this week, buoyed by the Federal Reserve’s significant rate cut, which has spurred optimism about loosening liquidity.
Stocks more exposed to high debt levels, particularly in the technology sector and among small-cap firms, have continued to outperform.
Meanwhile, the US dollar has continued to weaken, benefiting commodity prices.
Gold has reached a new high, while crude oil has experienced a notable rebound, alongside gains in silver and copper. Cryptocurrencies have also followed this trend, with Bitcoin rising to a three-week high.
Europe
Major benchmarks are set to finish the week higher, buoyed by growing risk-on sentiment. The Euro Stoxx 600 rose by 1.7%, the DAX climbed by 1.62%, the CAC 40 advanced by 2.01%, and the FTSE 100 increased by 0.67%.
Mirroring Wall Street’s trend, the European technology sector experienced strong gains in response to the Fed’s rate cut, leading to a likely positive weekly close for major stocks.
ASML shares jumped by 4.6%, while SAP rose by 3.27% on Thursday. Over the past five trading days, the two stocks recorded increases of 3% and 4.1%, respectively.
Mining and energy stocks also outperformed due to robust commodity prices, with Rio Tinto up 1.34%, Glencore shares rising by 4.55%, Anglo American jumping by 7.89%, Shell climbing by 2.41%, and BP up 3.24% from last week.
Consumer stocks made a comeback, as a lower interest rate environment tends to boost spending power. LVMH rose by 3%, despite a flat performance for the week. Hermès remained the best-performing luxury consumer stock, gaining 3.21% over the past five trading days.
Conversely, the pharmaceutical sector underperformed, as defensive stocks lost their appeal amid the risk-on sentiment. Novo Nordisk fell by 2.25%, AstraZeneca shares slumped by 4.05%, and GSK slid by 5.41% during the same period.
Commerzbank shares hit a 12-year high before a slight pullback, following news that the Italian lender UniCredit is seeking to increase its holdings in the German bank to up to 30%.
Bloomberg reported that the German government has initiated an internal investigation into the bank, which allowed UniCredit to acquire a 9% stake just a week ago.
On the economic front, Eurozone inflation was confirmed at 2.2%, approaching the European Central Bank’s target level of 2%, which could encourage further rate cuts.
However, the German ZEW economic sentiment recorded a significant decline in September, suggesting a worsening economic outlook as recovery hopes fade.
In the UK, consumer prices rose by 2.2% in August, unchanged from July but a resurgence from the previous two months.
ADVERTISEMENTThis data coincided with the Bank of England’s decision to keep the interest rate unchanged at 5%, contrasting with the Fed’s aggressive rate cut and sending the Pound soaring against the US dollar to its highest level since March 2022.
Wall Street
US stock markets continued to rally as the Federal Reserve commenced its easing cycle with a jumbo rate cut of 0.5%.
Over the past five trading days, the Dow Jones Industrial Average rose by 1.53%, the S&P 500 climbed by 1.56%, and the Nasdaq Composite advanced by 1.87%.
Notably, the small-cap Russell 2000 index jumped by 3.22%, outperforming the broader markets.
ADVERTISEMENTThis surge can be attributed to small-cap companies typically being more exposed to higher debt levels, thus benefiting from a low interest rate environment.
At a sector level, eight out of eleven sectors posted weekly gains, with energy leading the way, up by 5.21%, followed by telecommunications, industrials, and materials, all of which rose by more than 3%.
However, consumer staples, real estate, and healthcare sectors lagged behind, suggesting that investors rebalanced their positions following the Fed’s rate cut. Funds rotated from previous outperformers to underperformers.
The Fed’s aggressive rate cuts indicate a sense of urgency to reduce interest rates quickly to avert an economic downturn.
ADVERTISEMENTThe slowing labour market remains the primary concern, as the committee raised its median projection for the unemployment rate to 4.4% by the end of the year, up from the previously forecasted 4%.
In its post-meeting statement, the Fed indicated that risks to employment and inflation are now roughly balanced and reaffirmed its strong commitment to supporting maximum employment.
Asia Pacific
Asia-Pacific markets are also showing positive movement for the week, mirroring the global trend. Japan’s Nikkei 225 jumped 2% on Friday after the Bank of Japan (BoJ) maintained its policy rate and signalled no immediate plans for rate hikes.
This dovish stance was more relaxed than expected, further fuelling risk-on sentiment across the region.
ADVERTISEMENTThe BoJ indicated that it needed to monitor market conditions and the impact of its policies on the economy.
Australia’s ASX 200 reached a new all-time high, driven by a rebound in mining stocks and a broad rally in the major banking shares.
Additionally, the People’s Bank of China kept its benchmark rates—the 1-year and 5-year Loan Prime Rate (LPR)—unchanged at 3.35% and 3.85%, respectively.
The Hang Seng Index surged more than 5% this week following the PBOC’s pledge to enhance support for the economy.
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