Global Markets Surge on Rate Cut Speculation

Global stock markets reached new peaks on Thursday, fueled by rising expectations of interest rate cuts in the United States and other major economies, continuing a month-long upward trend.

Investor sentiment soared following the release of moderate U.S. inflation data on Wednesday, coupled with optimism in Asia regarding potential measures to address China's property crisis. The MSCI's benchmark world stocks index, which monitors 47 countries, saw its sixth consecutive day of gains. Wall Street futures pointed to higher openings, and Europe's STOXX 600 aimed to extend its winning streak to ten days, the longest since August 2021.

U.S. benchmark government bond yields, which influence global borrowing costs, fell to one-month lows amid speculation that the Federal Reserve might cut interest rates twice this year. The Japanese yen also strengthened against the dollar.

"The potential for easing U.S. inflation pressures has sparked significant market enthusiasm," said Elwin de Groot, Head of Macro Strategy at Rabobank. "Moreover, the market's recent focus on U.S. outperformance over Europe is beginning to shift, as shown by improved eurozone industrial production data."

In Asia, Chinese and Hong Kong property shares surged after reports suggested that Beijing might allow local governments to purchase millions of unsold homes. The CSI 300 real estate index and mainland property developers in Hong Kong rose by 3.5% and 4.9%, respectively. The yuan also gained strength as the U.S. dollar weakened following the inflation data.

In Europe, the U.S. dollar reached new multi-week lows against the euro and sterling. U.S. Treasury yields continued their decline, hitting six-week lows, which supported the yen’s recovery despite data indicating a greater-than-expected contraction in the Japanese economy.

Markets Anticipate Federal Reserve Rate Cuts

U.S. stock index futures showed modest gains after the S&P 500, Dow Jones Industrial Average, and Nasdaq all reached record highs the previous day. The rates market now anticipates two quarter-point interest rate cuts from the Federal Reserve this year, with a 72.6% chance of the first cut occurring in September, according to the CME FedWatch Tool.

Investors are optimistic that the Dow will surpass the 40,000 mark for the first time, potentially marking its fastest-ever 10,000-point rise, driven by strong corporate earnings.

In currency markets, the dollar fell to 154.62 yen in Europe, down from 156.55 in the previous session. Gold prices edged closer to record levels, and oil prices rose after rebounding sharply from a two-month low.

Market volatility indicators like the VIX have decreased amid the recent surges. Robert Alster, Chief Investment Officer at Close Brothers Asset Management, noted that the recent inflation data provided significant relief for those hoping for rate cuts. "The data has led to a substantial market movement, benefiting those with a slight overweight position in equities," Alster said.

Also Read: Asian Markets Surge on Expectations of Fed Rate Cuts