World equities had a strong gains today due to investor’s reaction towards decrease in inflation and indications of a shift towards lower interest rates by key global central banks. The S&P 500 rose by 1 percent this week as investors hovered in anticipation for the second coming of quantitative easing. 1% and the S&P 500 rose 0. 8% today ; The Nasdaq Composite surged another 2%. 3%, both record highs to their highest levels ever recorded. European markets also followed the suit as the pan-regional Stoxx index of 600 companies rose by 1%. 5%.
The rally was mainly driven by stronger than expected data on inflation in the US which indicated that inflation has slowed down its pace to rise.
The annual CPI inflation increased by 2 per cent. 4 per cent year on year in August which is lower than the market expectation of 2. 6%. These figures have strengthened beliefs that the warfare of the Federal fund rates might have almost come to an end and analysts are expecting a rate cut as early as Q2 of 2025.
In reaction to the inflation report, the U. S. Treasury yields declined significantly with the 10-year yield sliding to 3. Decreasing at the rate of 85%, the lowest rate in the last three months. These declines contributed further bullish sentiments to equity markets with special emphasis on stock varieties that are correlated with rate expectations such as growth and technology stocks.
The Federal Reserve, scheduled to congregate next week, has shocked market expectation to continue with their policy of leaving interest rates as they are. Jerome Powell the Chairman of the Federal Reserve has also recently indicated that the Federal Reserve will be more slow in raising interest rates which has helped to further improve the sentiment of the market. In the upcoming meeting, investors are looking forward to the Fed updated economical forecast of policy changes or clues indicating the directions they are about to take.
Across the Atlantic the European Central Bank (ECB) played a part in supporting this positive market sentiment. In her speech at Frankfurt conference, ECB President, Christine Lagarde focused on the bank’s efforts to bring inflation rates down to the desired 2% target while not overemphasizing this goal while at the same time considering the need for growth in the economy.
This was seen as slightly more bears than before, resulting in the lifting of the Euro zone stock and slightly weakening of the euro against other large counterparts.
In Asia it is placed that China’s markets have recovered after recent fluctations [fluctuations]. The People’s Bank of China (PBOC) has released additional measures that aimed at providing support to China’s property market such as reduction in bank reserve requirement ratio. This was expected to increase money circulation in the economy hence increasing the economy activity level. The Shanghai Composite index was not indifferent too as it increased by 1%. 2%.
The effects continued to be apparent especially in the global oil prices where Brent crude rose to $94 per barrel, the highest level since November, 2023. Recent hikes in the price of oil have therefore been experienced due to issues of supply, OPEC+’s continuation of production cuts and supply issues fueled by political tensions in the Middle East.
Although higher oil prices could spark inflation new round, the current market trend is the easing inflation in developed countries.
In the currency markets the US dollar index that tracks the US dollar against a basket of its counterparts declined by 0. 7%, after softer inflation data on the same front. This decline in the dollar was positive to emerging market currencies and commodities pegged on the dollar.
Looking at the recent events in these markets, most analysts are somewhat bullish about the short term prospects.
Nonetheless, they caution that geopolitical factors alongside returns to inflation, together with the constant issues in China’s economy are factors that might threaten the current recovery. Hence investors are advised to be keen and maintain diverse portfolios as the international financial system changes continually.
