Stocks gain on hopes of rate cut by Fed
Global stocks gained for a third straight day yesterday, bolstered by growing hopes that the US Federal Reserve might cut interest rates this year to boost a slowing global economy.
A flare-up in trade tensions between the United States and China, which hit investors' assumptions that a deal was on the cards, has affected world stocks and triggered fears of an impending recession.
Please log in or register with Independent.ie for free access to this article.
But recent comments from policymakers have helped stem the tide as top Federal Reserve officials this week began warning that the trade war may force them to respond, prompting investors to price possible interest rate cuts.
Interest rate futures show the US central bank will start cutting rates as soon as next month, with as many as three rate cuts priced by year-end. Fed chairman Jerome Powell did not question the market rethink of the U.S. interest rate trajectory on Tuesday.
He dropped his standard reference to the Fed being "patient" in approaching any rate decision and said the central bank was watching fallout from the trade war and would react "as appropriate".
The Fed chairman's comments come a day after St. Louis Federal Reserve President James Bullard said in a speech that a rate cut may be needed "soon".
Stock markets responded positively to Powell's comments, with US stocks registering their biggest one-day gains in five months.
The optimism rolled over into markets by mid-afternoon yesterday, with the MSCI All-Country World Index up 0.4pc in London, adding further to a 1.4pc gain on Tuesday. S&P 500 futures were up 0.7pc, indicating a buoyant open on Wall Street. European markets opened flat to marginally higher, but most bourses, barring Britain's FTSE 10, registered gains of nearly 0.5pc in early trading. The pan-European STOXX 600 index was up 0.5pc.
Italian sovereign bond prices and bank stocks fell after the European Commission concluded that Italy is in breach of EU fiscal rules because of its growing debt. Germany's 10-year bond yield reached a record low and Italian debt held on to this week's gains as investors ramped up their bets on a generous loan package for banks in the eurozone as well as a US rate cut.