Global shares gain on hopes for slower interest rate rises

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Global equities climbed on Thursday as investors cheered the prospect that the US Federal Reserve could slow the pace of monetary policy tightening after two sharp rate increases in a row.

The Fed on Wednesday lifted its main interest rate by 0.75 per cent points for the second straight month, but Fed chair Jay Powell soothed markets by saying the US central bank was open to the possibility smaller increases in the future. Wall Street stocks jumped after the announcement, while those in Asia and Europe followed suit on Thursday.

Europe’s region-wide Stoxx 600 gained 0.5 per cent in early dealing, with markets in Germany, France and the UK all rising. The MSCI Asia-Pacific index, meanwhile, gained 1 per cent.

Global equities have tumbled this year as central banks have moved to tackle surging inflation with sharp rate rises, which economists have warned could weigh on growth and lead to a recession. The MSCI All-World index of global stocks has dropped more than 17 per cent year to date as central banks in Europe and Asia have joined the Fed in raising rates.

But Powell’s comments on Wednesday provided a shot in the arm to sentiment on Wall Street, where the benchmark S&P 500 index rallied to end the day 2.6 per cent higher and the tech-focused Nasdaq Composite notched a rise of 4.1 per cent, marking its largest daily gain in more than two years.

“At some point, it will be appropriate to slow down . . . We might do another unusually large increase [in September] but that’s not a decision that we’ve made at all, we’re going to be guided by the data,” Powell said.

Traders and strategists said Powell’s suggestion that monetary policy decisions would be data dependent indicated a lower probability of large rate rises going forward.

“This does imply less dramatic increases in the next three [Fed] meetings than in the last two,” said Tai Hui, market strategist at JPMorgan Asset Management, adding that recent readings on “inflation and labour market dynamics . . . currently signal the need for a more cautious approach into next year”.

The prospect of slower rate rises by the Fed, which have driven global investors to dump many Asian currencies in favour of the dollar, also helped strengthen foreign exchange rates in the region.

Japan’s yen rose as much as 1.1 per cent against the greenback to about ¥135 while China’s renminbi edged up 0.3 per cent to Rmb6.746 per dollar.

Futures markets pointed to subdued trading on Wall Street when trading in New York opens later in the day. S&P 500 futures dipped 0.2 per cent, while those tracking the Nasdaq 100 fell 0.5 per cent. The falls came after Facebook owner Meta said economic conditions were to blame for its first year-on-year quarterly revenue decline. Its shares declined about 5 per cent in Frankfurt trading.

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