Darren Sinden from educational provider Trade Uni discusses the latest market moves.
The US entered a phase of lower interest rates yesterday as the Federal Reserve cut rates by 50 basis points. Although many traders expected the half-point cut, the decision still surprised some market watchers because central bankers are not known for making bold moves.
Major US stock indices ended the day lower ahead of the rate decision. The Nasdaq 100, for example, was down by 0.3%. But the small-cap Russell 2000 scraped into positive territory with a 0.02% gain and the S&P 600 small-cap index was up 0.09%.
The dollar index initially spiked on the Fed's decision but subsequently sold off, though it hasn't breached 100 points. The psychology of round numbers plays an important role in trading and that level could become a target for dollar bears at some stage.
In a statement the Fed said it had “gained greater confidence that inflation is moving sustainably toward 2%, and judges that the risks to achieving its employment and inflation goals are roughly in balance.” US 10-year treasury bond yields rose before the rate-cut announcement, though they subsequently slipped to trade at 3.72%.
US rate cut boosts the pound, Nikkei
The British pound has strengthened on the foreign exchanges. UK inflation data, released yesterday, seemed to imply that the Bank of England (BoE) wouldn't be cutting interest rates on Thursday, creating at least a short-term differential in monetary policy between the US and UK. In those circumstances, money tends to flow to the currency with the interest rate premium. GBP/USD is trading at $1.3240, up by 0.28% in London this morning. The BoE rate decision is due at 12pm (UK time).
Silver has risen by 2.73% in early European trade, just below $31 per ounce, while gold is up 0.6% and copper is up 0.85%. The biggest beneficiary of the US rate cut may be the Nikkei 225, which has risen 2.2%. The rate cut stirred optimism in Asia that the global economy could avoid a recession.
Early indications for US equities are positive, with the S&P 500 up 1.1% to 5,680 and the Nasdaq 100 up 1.73% to 19,678. European equity indices are also opening higher; the Dax is up 0.79%, the CAC 40 is up 1.15%, and the FTSE 100 is up 0.9%.
The Fed decision will receive its first test this afternoon in the form of initial jobless claims and the Philly Fed Manufacturing Index, both of which can serve as barometers of economic activity in the US. Also on the economic calendar this week is US existing home sales data, though this data was collected under the old interest rate regime, not the new
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