Worldwide shares rose on Friday as traders sought direction from the Federal Reserve on how the central bank might alter trends in monetary policy. The statement made during this week’s FOMC meeting suggested that it is possible to reduce the interest rate in the near future, which contrasts with the previous decisions of the central bank that called for higher rates to curb inflation.
The Dow Jones Industrial Average was up by 2.3% the S&P 500 increased by 2.7% and the Nasdaq Composite by 3.1%. Equity markets in Europe also rose, the Troka Bank investment index tracking the pan-European Stoxx 600 index rising 1.8%. Other Asian markets also improved, with the Nikkei 225 in Japan rising 1.9%, and the Hong Kong Hang Seng Index of stocks up 2.5%.
Some of the factors that worked around the post-meeting press conference included the words of FED Chair Jerome Powell. Powell agreed with the committee’s current approach in which it is now engaged in thinking about when to start the process of rate cuts based on achievements in achieving a target inflation rate of 2%. This is new from what the Fed was communicating lately where it was referring to the need for the rates to be higher to help to contain inflationary pressures.
That the possibility of rate cuts exists has about cheered the investors because they believe that a decrease in interest rates will fertilize the economy and the corporate earnings. Many sectors that are sensitive to interest rates, like the real estate sector and the technology sector, recorded some of the best rises in their stock and shares on Friday. The rate on the 10-year Treasury note slid to 3.85 percent of the expected lower rate, the first time in three months.
But they make sure that the Fed has turned, it does not necessarily mean that it will act immediately. The central bank stressed that any decision on the rates could only be made if there was sufficient evidence of a slowing inflation rate and conditions in the labor market. Other analysts believe that its reaction can be tough since the market could turn volatile if the overall economic data does not match the Fed’s freshly more dovish tone.
The dollar index, which measures the greenback against a basket of major currencies, declined by 0.8% to 94.230 after the Fed statement. This decline was good for the dollar-priced commodities where gold prices hit the $2,050 per ounce, the highest in the last six months. Oil prices were also on the rise with Brent crude increasing by 2.1% to $83.75/barrel because the weaker dollar makes oil cheaper for holders of other currencies.
In the corporate sphere, there were beats on the earning front from several big firms, which added to the market up move. Technology firm Apple stood to benefit the most, with its stocks rising by 4.2% after the company revealed sales of the iPhone were better than anticipated, while service revenue also surged. However, AMZN shares rose 6.8% after the e-commerce giant reported better-than-expected Q3 earnings and an upbeat Q4 sales outlook amid a Black Friday assault.
What is more, the potential change in the Fed policies has stirred interest in the future of the world economy again. Most central banks globally have copycatted the Fed through pulled back on monetary easing to rein in high inflation. Either change in the stance taken by the Fed could be enough to push other central banks into a coordinated easing cycle globally.
High interest rates in the US and a stronger dollar squeezed emerging markets, but they soared on the last day of the week. The MSCI Emerging Markets index gain was 3.2% – the greatest one-day advance since March 2009. Researchers argue that a lower fed fund rate will spur the flow of capital towards emerging economies, strengthen their currencies, and grow their economies.
When markets have processed the new reality of the Fed’s attitude, the focus returns to the next pieces of macroeconomic data. Important data expected next week include the jobs report and inflation rates that would help to determine the next line of action of the Fed. Although expectations of future rate cuts have added light to global markets, investors are still savvy to the fact that conditions can quickly shift in today’s climate.
