World stocks sail to highest in over a year

Rally came on optimism that central banks will cut interest rates

LONDON:

World stocks rallied to their highest levels in more than a year on Wednesday, while the US dollar hit a five-month low, as expectations mounted major central banks such as the Federal Reserve will start to cut interest rates early next year.

The jovial mood boosted the MSCI’s gauge of stocks across the globe by 0.33% to a level not seen since October 2022. On Wall Street, the Dow Jones Industrial Average rose 0.16%, while the S&P 500 and the Nasdaq Composite were flat.

European shares were also little changed, with trade subdued given public holidays across the region on Monday and Tuesday.

Read US Fed raises interest rates to 16-year high

In line with expectations of lower interest rates, the benchmark 10-year Treasury yield slipped to 3.837%, and the 2-year yield retreated to 4.2643%. Expectations of rate cuts also dragged on the US dollar, which fell 0.434% against a basket of six major currencies to a level last seen on Jul. 27.

“If the Fed cuts rates because inflation has come so far down that they don’t want policy to unintentionally tighten ... then that’s probably a good scenario,” said Lou Brien, market strategist at DRW Trading in Chicago. If they cut because of a weakening economy, however, “then the history is kind of harsh” for the economy and the stock market. “The motivation behind the rate cuts is still unknown and is going to be the most important factor,” Brien said.

Published in The Express Tribune, December 28^th, 2023.

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