On Wednesday the central bank announced a 25 basis point rate cut, as widely expected, acknowledging that “downside risks to employment have risen”. In addition, the median projection of policymakers indicated that they expect two further cuts this year, with prospects of additional cuts helping to lift markets. Further supporting sentiment was news on Friday that Presidents Trump and Xi had spoken on the phone and had approved a preliminary agreement regarding TikTok’s US operations.
For the week, the S&P 500 gained 1.2%, the Dow Jones Industrial Average added 1.1% and the tech-heavy Nasdaq Composite was up 2.2%. All three ended the week at record highs, with trading volumes on Friday at their highest level since April. Meanwhile the small-cap Russell 2000 was up 2.2% on the week, securing a record closing high on Thursday. S&P 500 sector performance was mixed with real estate, healthcare and energy amongst laggards while communication services and information technology led gainers. Despite the Fed rate cut longer-dated US Treasury yields moved higher, while short-term yields were little changed.
European markets ended roughly flat with monetary policy in focus. There was a degree of caution ahead of the Fed meeting outcome, with rate-sensitive areas such as banks and insurance a major drag on Tuesday. Later in the week banks did manage to stage a rebound. The best performer on the pan-European STOXX 600 index was tech, jumping 4.9%. Within this area, semiconductors were some of the strongest gainers, helped by Nvidia’s announcement that it plans to invest $5bn in to Intel. In other central bank decisions, the Bank of England left its interest rate unchanged at 4% but announced it would slow the pace of bond sales, while Norway’s Norges Bank cut its key rate by 25bps to 4%.
Japanese markets saw mixed performance whereby by broader Topix dropped 0.4% while the Nikkei 225 gained 0.6%. As expected, the Bank of Japan (BoJ) held its interest rate steady, however two of the nine policymakers dissented and backed a rate hike. Furthermore, core consumer inflation climbed 2.7% year-on-year in August, easing from July’s 3.1% pace but still above the BoJ’s 2% target, further adding to support for a rate hike. In Hong Kong, the Hang Seng added 0.6% however the Shanghai Composite took a break from its recent rally, declining 1.3%. This came after August data on industrial output and retail sales was the weakest of the year and came in lower than expectations.