Market snapshot: stocks still reacting to global interest rate moves

In something of a delayed reaction, US markets forged ahead as the benefits of a larger-than-expected interest rate cut became clearer, pushing up a broad selection of shares amid renewed buying interest.

The main indices had previously erased gains following the announcement on Wednesday, but sentiment improved drastically as investors absorbed Federal Reserve Chair Jerome Powell’s comments that a deep cut in a relatively strong economy would ultimately prevent a recession. The possibility of the ideal soft landing scenario was further enhanced by a weekly jobless claims number which showed a fall of 12,000 jobs, comfortably below estimates. 

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Not only may the cut have moved the Fed ahead of the curve, but it may also have bought the central bank some time in considering the economic data over the next couple of months. The market is expecting further reductions of a similar amount before the end of the year, and in the absence of an economic downturn, the scene is set for a positive end to the year.

In the meantime, the animal spirits returned with the Dow Jones and benchmark S&P500 rising to fresh record highs, buoyed by mega cap technology shares, where the likes of NVIDIA Corp (NASDAQ:NVDA) and Meta Platforms Inc Class A (NASDAQ:META) rose by some 4%.

Elsewhere, industrial bellwether Caterpillar Inc (NYSE:CAT) added over 5% and banks also saw some buying interest. The smaller cap Russell index, whose constituents are seen as a particular beneficiary of lower rates given their need for borrowing to grow their businesses, also added more than 2% as the rising tide lifted all boats.

The moves to some new record highs have consolidated the performance of the main indices in the year to date, where the Dow Jones has now added 11.5% alongside a hike of 20% for both the S&P500 and the Nasdaq.

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Asian investors were in similarly celebratory mood, with Japan’s Nikkei 225 index rising by more than 2% amid some tech-led gains, while a marginally weaker yen after a recent strong run also improved fortunes for the exporters. The Bank of Japan decided not to raise interest rates at its latest meeting, although the release of accelerating core inflation data suggested that such hikes may be edging closer. Even so, such a move is currently not expected until December at the earliest and may even tip over into next year.

The generally upbeat sentiment was slightly tarnished by the Chinese central bank’s decision to leave rates on hold, when investors had been crying out for a reduction to provide a boost to the flagging economy, The reticence of the authorities to wade in with any meaningful and sustained stimulus to revive prospects has been a central source of exasperation for investors and has seen domestic shares struggle as the weight of the money in the region has been switching elsewhere.

The UK was unable to join the global party and gave back some of the gains from a previously strong trading session. Sentiment was impacted by releases showing differing trends. On the one hand, retail sales rose by a stronger-than-expected 1% in August, with the July number also subject to an upward revision, driven largely by end-of-season sales and warmer weather which supported the likes of the retailers and the supermarkets.

However, a consumer confidence reading revealed a poor result, with the upcoming Budget the likely source of deteriorating sentiment, and with larger ticket purchases currently off the table as a result. The disappointing release was felt most keenly in the FTSE250, where an opening decline reduced the index progress in the year to date to a nonetheless stable 6.7% and where sombre numbers on borrowing and national debt provided little relief.

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The premier index also struggled in opening exchanges, with Burberry Group (LSE:BRBY)’s memory of its last trading day before demotion to the FTSE250 becomes effective on Monday likely to be a painful one. Quite apart from more disappointing Chinese news, the stock was buffeted by two broker downgrades which sent the shares lower by more than 4%. This latest onslaught leaves the shares having plummeted by 70% over the last year and by 58% in this calendar year alone.

Elsewhere, a broad mark down across sectors held the index back, with another bout of sterling strength providing an additional headwind to an index dominated by exposure to overseas earnings. Even so, the FTSE100 remains up by 7% so far this year, although the gain has paled somewhat over recent days in comparison to the surge being seen in the States in particular.