Friday 19 July 2019

US rate cut signal sends world stocks soaring

Drone: News that Iran shot down a US military craft caused oil prices to surge. Photo: AFP/Getty Images
Drone: News that Iran shot down a US military craft caused oil prices to surge. Photo: AFP/Getty Images

Lewis Krauskopf

WORLD stock markets surged yesterday, with the US benchmark S&P 500 hitting a record high, while the 10-year US Treasury yield fell below 2pc as investors digested a signal from the Federal Reserve of potential US interest rate cuts as soon as its next meeting.

The US dollar also weakened after the Fed indicated on Wednesday a marked shift in sentiment even as it left its benchmark rate unchanged for now.

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"We have obviously morphed into the Fed taking the pole position as far as what's driving the market right now, both domestically and on a global basis as well," said Mike Mullaney, director of global markets research at Boston Partners.

"It's risk-on trade again right now for the time being and I don't see anything on a near-term basis that is going to disrupt that."

Oil prices also surged, lifted by the Fed as well as by news that Iran shot down a US military drone, raising fears of a confrontation between Tehran and Washington. MSCI's gauge of stocks across the globe gained 1.02pc. The index hit its highest since May 1.

On Wall Street, the Dow Jones Industrial Average rose 203.87 points, or 0.77pc, to 26,707.87, the S&P 500 gained 21.98 points, or 0.75pc, to 2,948.44 and the Nasdaq Composite added 65.04 points, or 0.81pc, to 8,052.36.

Energy, technology and industrials were among the best-performing S&P 500 sectors. "Cyclicals are definitely getting a big pop today," Mullaney said.

The pan-European STOXX 600 index rose 0.52pc, reaching its highest since early May.

Benchmark government bond yields in the United States and Europe tumbled following the Fed's decision, with the US 10-year note yield falling below 2pc for the first time in two-and-a-half years.

Benchmark 10-year US notes rose 12/32 in price to yield 1.9855pc, from 2.027pc late on Wednesday.

"The statement indicated the Fed no longer insists on a pause or patience, providing an open ear to doves at upcoming meetings. Also critical ... acknowledgment that inflation pressures are muted," said Jim Vogel, interest rate strategist at FTN Financial in Memphis, Tennessee.

"As difficult as it might be to imagine, rates are also free to fall further," he added.

The dollar index, which measures the greenback against a basket of currencies, fell 0.46pc, with the euro up 0.6pc to $1.1291. US crude rose 5.73pc to $56.84 per barrel and Brent was last at $64.51, up 4.35pc.

Reuters

Irish Independent

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