LONDON, Sept 19 (Reuters): A wave of risk appetite swept global financial markets higher from stocks and the dollar to gold and oil on Thursday, after the U.S. Federal Reserve kicked off its long-awaited interest rate cutting cycle with a half point move.
Europe was waiting to see if the Bank of England delivers a surprise cut of its own later. That is seen as only an outside chance, so for the time being the bulls were content with the first Fed cut in four years.
The cut, and the prospect of more before the end of the year, pushed MSCI's 47-country world stocks index close to a record high. Wall Street futures were up after the S&P 500 hit its own all-time peak overnight , and Europe also opened strongly.
In currency markets, the dollar overcame its initial post-Fed dip. /FRX London's gold bugs basked in bullion's latest highs, and oil and the industrial metals complex were stronger on the view that lower rates equals stronger demand.
"The Fed delivered a very dovish rate cut. This bodes well for risk assets," Brown Brothers Harriman Senior Markets Strategist Elias Haddad said, adding that this was likely to keep the pressure on the dollar.
The U.S. central bank lowered its benchmark policy rate by 50 basis points to 4.75 per cent-5 per cent. It also dramatically cut the median 'dot plot' profile on where its rate setters expect rates to be in future, though Fed chief Jerome Powell emphasised prudence.
"I do not think that anyone should look at this and say, oh, this is the new pace," Powell told reporters after the half point cut was announced.
"We're recalibrating policy down over time to a more neutral level. And we're moving at the pace that we think is appropriate, given developments in the economy."
In Europe, the dollar was well off recent lows hit against the euro , at $1.1127, and steady around 142.70 yen, after climbing as high as 143.95 .
Bond markets were recalibrating too after their recent busy spell. Ten-year Treasury yields were at just under 3.7 per cent compared with 4.7 per cent back in April, while Europe's benchmark - the 10-year German Bund - was at 2.2 per cent, a 1-1/2 week high.
Multiple line charts showing the policy rates of the central banks overseeing the 10 most traded currencies between September 2021 and September 2024.
Multiple line charts showing the policy rates of the central banks overseeing the 10 most traded currencies between September 2021 and September 2024.
It wasn't all about the Fed. Norway's central bank held its rates at a 16-year high but signalled it might cut them next year, while a Bank of England decision was due at 1100 GMT.
Sticky UK services inflation data on Wednesday has seen traders temper their bets that the BoE might trim the UK's 5 per cent interest rate again, although they are still pricing a near 20 per cent possibility.
In Asia overnight, the bulls drove Japan's Nikkei up 2.1 per cent and stock markets in Australia and Indonesia to record highs.
Expectations that the People's Bank of China will also ease its policy on Friday helped too. Chinese bond yields dipped again, the yuan hit a 16-month peak of 7.0640 against the dollar, and Hong Kong's Hang Seng jumped over 2 per cent.
One dampener was South Korea returning from a holiday with heavy selling in chipmakers, after a downbeat Morgan Stanley note that halved SK Hynix's target price. SK Hynix shares tumbled 6 per cent and Samsung fell 1.6 per cent.
No such worries for commodity markets. Oil prices were up over 1 per cent, with benchmark Brent crude futures climbing back above $74 a barrel for the first time in over a week and U.S. crude at $71.50.
Bellwether global industrial metals copper , aluminum and nickel all rose 1-1.4 per cent.
The Bank of Japan will round out a bonanza week for interest rate decisions on Friday. It is not expected to do anything this meeting but in stark contrast to the broader global trend it could line up another rate hike for as soon as October.
