Global Markets Soar as Dovish Fed Signals Potential Rate Cuts

S&P 500 futures also climbed by 0.25%, following the index's surge to its highest level since January 2022, coming within 2% of an all-time high.

Global stock markets and bond yields continued to thrive in the wake of Wednesday’s Federal Reserve meeting.

MSCI’s worldwide equity index was headed for its seventh consecutive week of gains, marking its longest winning streak in six years, while the 10-year Treasury yield fell below 4%.

In Europe, the STOXX 600 benchmark reached a 23-month high, rising by 0.2% for the day.

S&P 500 futures also climbed by 0.25%, following the index’s surge to its highest level since January 2022, coming within 2% of an all-time high.

Meanwhile, the Asia-Pacific shares index, excluding Japan, increased by 1.1%, reaching its highest level since August.

However, it lagged behind global benchmarks due to ongoing concerns about China’s economic weakness.

The recent Federal Reserve meeting continued to bolster both stock and bond markets.

While the Fed left interest rates unchanged as expected, policymakers indicated the possibility of 75 basis points in rate cuts for 2024.

Fed Chair Jerome Powell suggested that the historic tightening of monetary policy was likely over, as inflation was declining more rapidly than anticipated.

Market participants responded by pricing in approximately 150 basis points of Fed rate cuts for the next year, as well as similar cuts from the European Central Bank and 110 basis points from the Bank of England.

Notably, European central banks attempted to resist rate cuts at their Thursday meetings.

Sebastian Vismara, Senior Financial Economist at BNY Mellon Investment Management, remarked on the dovish stance of the Fed, stating, “The Fed, obviously, was more dovish than expected, and the market has been rallying strongly on the back of that and Powell’s comments which endorsed rate cuts for the first time.”

MSCI’s global equity index was up 0.1% for the day and set to close the week with a 2.7% gain, making it the best week since November.

It was also on track for its seventh consecutive week of gains.

Despite European Central Bank President Christine Lagarde’s assertion that rate cuts were not discussed, preliminary Composite PMI data on Friday revealed economic challenges in the Eurozone, with a reading of 47.0, worse than expected, marking the seventh consecutive month below the 50-level that separates growth from contraction. Eurozone bonds rallied in response.

In the currency markets, the euro dipped to $1.0961, impacted by weak PMI data but still holding most of its 1.1% gain from the previous day when the ECB appeared more hawkish than the Fed.

Furthermore, the dovish Fed and declining U.S. yields put downward pressure on the dollar index, which fell by 1.8% for the week.

Oil prices climbed on the back of a bullish forecast from the International Energy Agency (IEA) regarding oil demand for the next year and a weaker dollar. U.S. crude rose to $72.16 per barrel, while Brent reached $77.12 per barrel.

Lastly, spot gold saw a 0.3% increase, reaching $2,043.1 an ounce.