Global Markets Weekly Wrap KW 37 : Global Markets Surge as Fed Cuts Rates for First Time in Four Years

U.S. Markets
U.S. stock markets surged to new highs this week following the Federal Reserve's rate cut. Investors welcomed what many believe will be an extended rate-cutting cycle. Large-cap indices, including the S&P 500 and Dow Jones Industrial Average, hit record levels, while small-cap indices, such as the Russell 2000, also performed well but remained below their past peaks. The Russell 2000 ended the week about 9% below its all-time high reached in November 2021.

The main event driving market sentiment was the Fed's decision to cut rates by 50 basis points, marking the first rate reduction since March 2020. Initially, the markets reacted mildly, with the S&P 500 dipping slightly. However, by Thursday, the major indices rallied, driven by optimism surrounding the potential long-term effects of the Fed's actions.

Economic data this week were generally positive. Retail sales increased more than anticipated, and jobless claims came in lower than expected, signaling a resilient consumer sector. Housing data was mixed, with building permits up 4.9% but existing home sales down 2.5%.

In the bond market, yields on U.S. Treasuries rose modestly following the Fed's decision. Investment-grade corporate bond spreads tightened, indicating investor confidence, while municipal bond yields also saw movement, particularly at the long end of the yield curve. The high yield market, after a quiet start to the week, strengthened following the rate cut.

European Markets
The pan-European STOXX 600 Index closed the week 0.33% lower as the initial enthusiasm from the U.S. rate cut faded. Major stock indices in Italy, France, and Germany rose slightly, while the UK's FTSE 100 fell 0.52%.

The Bank of England (BoE) kept its interest rates steady at 5.0%, with policymakers taking a cautious approach amid concerns over inflation. While overall inflation remained unchanged at 2.2%, service prices, a key measure due to its link with wages, ticked higher to 5.6%. Other European central banks, like the European Central Bank (ECB) and Norway's national bank, also left their rates unchanged but signaled that future rate cuts could be gradual.

Asian Markets
Japan's stock markets rose significantly, with the Nikkei 225 gaining 3.1%. The yen weakened against the dollar, driven by the Fed's rate cut and the Bank of Japan's decision to keep its rates unchanged. The yen's depreciation provided a tailwind for Japanese equities, while Japan's bond yields inched higher.

In China, equity markets rallied in a holiday-shortened week, with the Shanghai Composite up 1.21%. However, economic data highlighted slowing momentum in the Chinese economy, including weaker industrial production, retail sales, and property investment figures.

Other Markets
In South Africa, the central bank cut its key interest rate by 25 basis points following the Fed's decision, citing expectations of sustainably lower inflation in the medium term. Meanwhile, Turkey's central bank held its rates steady at 50%, underscoring ongoing inflation concerns.

Market Overview Indices Snapshot (as of Friday):

DJIA: 42,063.36 (+669.58, +11.60% YTD)
S&P 500: 5,702.55 (+76.53, +19.55% YTD)
Nasdaq: 17,948.32 (+264.34, +19.56% YTD)
Russell 2000: 2,227.89 (+45.40, +9.91% YTD)