Asian traders endeavored to regain momentum in the recent rally on Thursday following a lukewarm performance on Wall Street. However, soaring achievements in Europe underscored optimism surrounding potential interest rate cuts by central banks.
London celebrated another milestone, reaching an all-time high ahead of an anticipated Bank of England meeting. Many anticipate that officials will signal their intention to commence the normalization of monetary policy in the summer.
This development follows Sweden’s central bank’s decision to lower borrowing costs for the first time in eight years, hinting at further reductions in the future.
The Riksbank’s move comes almost two months after the Swiss National Bank’s groundbreaking decision, making it the first major Western central bank to adjust its policies amidst a global tightening campaign aimed at combatting inflation driven by Covid recovery and the Ukraine conflict.
Traders, who had been anticipating rate cuts from the Federal Reserve, experienced a tumultuous journey this year. A series of inflation readings surpassing forecasts compelled them to revise down their expectations. Initially estimated at six, the consensus now stands at around two rate cuts by January 2024.
Several Federal Reserve policymakers have also attempted to moderate expectations. Boston Fed President Susan Collins, the latest to weigh in, suggested that rates might need to remain at their highest levels in two decades for a longer period to rein in prices. Her sentiments echoed those expressed by her Minneapolis counterpart, Neel Kashkari, the previous day.
Nevertheless, a slew of positive corporate results, reassuring remarks from Fed Chair Jerome Powell regarding the likelihood of a rate hike, and a significant shortfall in US jobs data last month have buoyed trader sentiment over the past week.
Analysts maintain a generally positive outlook on equities despite the absence of encouraging news on inflation. Mark Hackett of Nationwide noted, “As the Federal Reserve extends the timeline for interest rate cuts, historical data shows that longer Fed pauses often correlate with better equity returns. This should give investors reasons to be optimistic.”
Following London’s record-breaking performance and gains in Paris and Frankfurt, New York witnessed a mixed session, while Asian markets encountered challenges.
Hong Kong resumed its upward trajectory after a two-day decline following a ten-day winning streak, with Tokyo, Shanghai, and Manila also posting gains. However, Sydney, Singapore, Seoul, Wellington, and Taipei experienced marginal declines.
Oil prices saw a second consecutive increase as investors monitored efforts towards a ceasefire in the Middle East, notwithstanding Israel’s ongoing assault on Rafah in southern Gaza.
