Key Points
- The Federal Reserve announced a 50-basis-point rate cut, signaling a gradual easing cycle.
- Stocks in Asia and Europe surged, while U.S. futures rose on the Fed’s move. The dollar recovered, standing strong against major currencies.
- China’s stocks surged on expected stimulus, while South Korean chipmakers faced losses.
- Oil price hovered at $70.60 in Crude Oil Futures and $74.34 in Brent Crude Futures. Gold reached a record high of $2,603 an ounce.
Global markets responded positively after the Federal Reserve implemented a 50-basis-point rate cut, signaling a gradual easing cycle ahead that could lead to a soft landing for the U.S. economy. This move, designed to recalibrate U.S. monetary policy, has lifted stocks and increased optimism across Asia and Europe.
The S&P 500 hit a record high overnight before closing slightly lower. Despite this, futures for the index rose 1.11% during the Asian trading day, with Nasdaq futures gaining 1.65%. European futures climbed 1%, and FTSE futures jumped 0.8%. Japan’s Nikkei index surged by 2.13%, while stock markets in Australia and Indonesia reached record highs. In China, expectations of incoming stimulus drove down bond yields, pushing Hong Kong’s Hang Seng Index up by 1.95% and the mainland’s CSI300 by 0.79%.
The Federal Reserve’s decision to reduce the benchmark policy rate by 50 basis points to a range of 4.75%-5% was anticipated by traders. Initially, the dollar fell sharply, hitting a two-and-a-half-year low against the British pound, but it soon rebounded. The dollar stood at $1.114 against the euro and 142.35 yen after reaching a high of 143.95 yen. Meanwhile, China’s yuan hit a 16-month high in Asia at 7.069 per dollar, as the market expects China to cut its main policy and benchmark lending rates on Friday.
Gold hit a record high of $2,603 an ounce. Oil prices hovered at Crude Oil Futures at $70.60 and Brent Crude Futures at $74.34 per barrel, putting pressure on global benchmarks. Lower U.S. rates provide emerging markets more flexibility to cut rates, so Indonesia’s central bank cut its policy rate by 25 basis points ahead of the Fed’s decision.
Jason Wong, a strategist at BNZ in Wellington, said, “The key was never going to be about 25 or 50, it’s all about the path forward, and I think they’ve outlined a view where the economy is still doing pretty well.” He emphasized that this was not a “panicked 50-basis-point cut.”
Fed Chair Jerome Powell stressed that the rate cut is part of a strategy to bring policy rates to a neutral level over time, maintaining flexibility based on economic conditions. “We’re recalibrating policy down over time to a more neutral level,” Powell told reporters.
