On Thursday, European equities experienced a downturn following indications from the Federal Reserve that it would reduce the frequency of interest rate cuts, leading to significant volatility in global markets. Furthermore, the yield on the 10-year U.S. Treasury rose to its highest level since May, further unsettling investors. In Germany’s financial hub, Frankfurt, the German DAX index, festively decorated for the holiday season, felt the adverse effects.
The decline was predominantly led by technology stocks, which are particularly sensitive to the Fed’s announcements. Anticipation surrounding the Bank of England’s (BoE) upcoming significant decision scheduled for 1200 GMT is also adding to market turbulence. In the meantime, the volatility index for Eurozone shares has surged, showcasing the prevailing uncertainty among investors.
Stocks and currencies in the Asia-Pacific region faced declines on Thursday amid a broader market sell-off, spurred by the U.S. Federal Reserve’s third consecutive interest rate cut and indications of a less aggressive approach moving forward. Investors are also assessing the Bank of Japan’s (BOJ) choice to maintain its policy rate at 0.25% for the third consecutive meeting. The Japanese yen fell by 0.74% to 155.94 per U.S. dollar, reaching its lowest level in a month, following remarks by BOJ Governor Kazuo Ueda that the central bank would continue to increase policy rates if the economy aligns with forecasts.
Consequently, Japan’s Nikkei 225 index dropped by 0.69%, closing at 38,813.58, while the Topix index declined by 0.22%, finishing at 2,713.83. Meanwhile, in South Korea, the Kospi index plummeted by 1.95% to end at 2,435.93, and the Kosdaq index fell by 1.89% to close at 684.36. The South Korean won was trading near its lowest level since March 2009, recently quoted at 1,452.33 per U.S. dollar.
Australia’s S&P/ASX 200 index decreased by 1.7%, closing at 8,168.2.
Hong Kong’s Hang Seng Index experienced a drop of 0.36% during the last hour of trading, while China’s CSI 300 index saw a modest uptick to close at 3,945.46. The Hong Kong Monetary Authority announced a rate cut of 25 basis points in line with the Fed, reflecting the country’s tightly pegged currency to the U.S. dollar. Additionally, New Zealand has officially entered recession, as recent data from Stats NZ indicated two successive quarters of decline.
In the U.S. overnight market, major indices declined sharply in the wake of the Federal Reserve’s rate cut.
European stocks exhibit decline following Fed announcements
The Dow Jones Industrial Average saw a significant drop of 1,123.03 points, or 2.58%, concluding at 42,326.87, marking its first 10-day losing streak since 1974.
The S&P 500 fell by 2.95% to 5,872.16, while the Nasdaq Composite experienced a loss of 3.56% to end at 19,392.69. The widespread sell-off was triggered after the Fed reduced its overnight borrowing rate by 25 basis points and indicated only two additional cuts would occur in 2025, a decrease from its prior forecast of four cuts. During the post-meeting press conference, Fed Chair Jerome Powell commented, “We moved pretty quickly to get to here, and I think going forward obviously we’re moving slower.”
In currency trading, the Chinese offshore yuan depreciated past 7.3 against the U.S. dollar following the Fed’s rate reduction. The People’s Bank of China is poised to release its monthly benchmark lending rates on Friday. Last month, the one-year loan prime rate, which impacts typical corporate and most household loans, remained at 3.1%, while the five-year loan prime rate, which serves as a reference for mortgage loans, stood at 3.6%.
Chinese officials have committed to implementing a “moderately loose” monetary policy, fueling expectations for additional rate cuts. The Hong Kong Monetary Authority’s decision to reduce its base interest rate by 25 basis points to 4.75% aligns with the Fed’s action, reflecting the city’s monetary policy that synchronizes closely with U.S. movements due to the currency’s peg to the dollar.
During his press conference, Powell underscored a more restrained approach towards forthcoming rate adjustments: “As we think about further cuts, we’re going to be looking for progress on inflation… We have been moving sideways on 12-month inflation.”
The dollar index appeared set to conclude Wednesday at its highest closing point in over two years, trading around the 108 mark. Following the Fed’s announcement, all 11 S&P 500 sectors closed in the red, with the consumer discretionary and real estate sectors suffering the largest declines at approximately 4% and 2.9%, respectively.
Both information technology and communication services each fell about 2.4%, while financials, materials, and industrials experienced reductions nearing 2%. Markets across the Asia-Pacific region reflected the broader apprehension observed in the U.S., responding to crucial central bank decisions. Although the actions of the Fed and BOJ created some anticipation, their cautious outlooks and economic conditions led to significant market disruptions.
