Stock markets rallied on Thursday as traders reacted positively to signals from both the US Federal Reserve and the European Central Bank (ECB) suggesting a pause in interest rate hikes. The Fed increased borrowing costs on Wednesday, as expected, but analysts believe that it will now pause further rate hikes. The ECB also raised interest rates, but ECB chief Christine Lagarde hinted at a possible pause due to the deteriorating economic outlook in the eurozone.
This news was well received by stock markets on both sides of the Atlantic. Frankfurt’s stock market even achieved a record high closing, while the euro fell in response to the ECB’s announcement. Analyst Michael Hewson at CMC Markets stated that investors were increasingly adopting the view that central banks may have finished raising rates, especially as recent US economic data pointed to a positive economic outlook.
US Federal Reserve chief Jerome Powell also expressed optimism about the US economy, suggesting that it could avoid a recession. Recent data has shown the US economy growing at a faster rate than anticipated in the second quarter of the year, with GDP growth reaching 2.4%, surpassing expectations. Additionally, jobless claims and durable goods orders have shown the resilience of the US economy in the face of higher interest rates.
Patrick O’Hare, an analyst at Briefing.com, shared a positive sentiment about the stock market, mentioning that good earnings, a strong economy, and supportive monetary policy were factors contributing to the market’s upward trajectory. He also noted that fear of missing out on further gains was another motivating factor for investors.
Earnings reports from Facebook’s parent company, Meta, indicated better-than-expected performance, leading to a 7.5% increase in Meta shares during morning trading in New York. However, other companies, including Samsung Electronics, faced challenges, with plunging profits due to weak demand for memory chips. Energy majors like Shell and TotalEnergies also revealed heavy earnings declines following the retreat of oil and gas prices.
Investors are now turning their attention to the Bank of Japan, awaiting its upcoming decision on monetary policy. Furthermore, the market is closely monitoring China, which recently announced plans to support the struggling property sector and boost its economy, following weakening post-Covid recovery data.
In summary, stock markets rallied as traders speculated that the US Federal Reserve and the European Central Bank may have paused their interest rate hikes. Positive economic data and supportive monetary policies have also contributed to the optimistic outlook of investors. However, earnings results for companies varied, with some showing strength while others faced challenges. The Bank of Japan’s forthcoming decision and China’s plans to stimulate its economy will be closely watched by investors.
