TOKYO — Global markets experienced a downward trend, with Japan’s stock index dropping sharply as the U.S. dollar weakened against the yen following indications from the Federal Reserve hinting at imminent interest rate cuts.
In early trading, France’s CAC 40 decreased by 1.3% to 7,433.71, while Germany’s DAX also fell 1.3% to 18,275.40. The UK’s FTSE 100 edged down 0.3% to 8,347.45. Futures for the S&P 500 saw a marginal increase of 0.1%, whereas Dow industrials futures declined by 0.1%.
Central bank activities took center stage after the Bank of Japan raised its benchmark interest rate and the Federal Reserve opted to maintain its current rate. There is speculation regarding the Bank of England’s potential decision to cut its main interest rate by a quarter-point from its 16-year high of 5.25% during Thursday’s meeting.
Although inflation has reached the central bank’s target of 2%, concerns linger among policymakers regarding sustained price pressures in the services sector, which constitutes around 80% of the British economy.
In Asian markets, the Nikkei 225 index in Tokyo plummeted over 1,000 points at its lowest point before closing down 2.5% at 38,126.33.
A stronger yen enhances the purchasing power of Japanese consumers and businesses, though it negatively impacts exporters like notable automotive brands by diminishing the value of their revenue from overseas.
Hong Kong’s Hang Seng Index slipped 0.2% to 17,304.96, with the Shanghai Composite also down by 0.2% to 2,932.39. Conversely, Australia’s S&P/ASX 200 edged up 0.3% to 8,114.70, and South Korea’s Kospi rose 0.3% to 2,777.68.
In currency markets, the U.S. dollar fell to 149.67 Japanese yen from 149.98 yen. The euro remained relatively stable at $1.0815 compared to $1.0830. Just weeks prior, the dollar was trading at 160-yen levels, but that trend reversed following the anticipation of a Bank of Japan rate cut.
Notably, Toyota’s shares dropped by 8.5%, while Nintendo and Sony saw declines of 3.4% and 3.3%, respectively.
Analysts noted that the Federal Reserve is indicating potential rate cuts ahead. “A September cut is now priced in with certainty, and almost three cuts are priced in by year-end,” said a regional economist.
On Wall Street, the S&P 500 surged 1.6% to 5,522.30, marking its strongest performance since February. The Dow Jones Industrial Average rose by 0.2% to 40,842.79, while the Nasdaq composite soared by 2.6% to 17,599.40.
This robust performance on Wall Street was attributed to easing Treasury yields in the bond market as the Federal Reserve highlighted its readiness to lower interest rates in September.
“We believe that the time is approaching,” stated a Fed representative, emphasizing the importance of the data ahead for potential rate adjustments at the September meeting.
Following the Fed’s decision to maintain current interest rates, discussions centered on the potential risks associated with either premature or delayed cuts. These decisions are critical, as missteps could either reignite inflation or inflict economic hardship.
Moreover, the oil market faced notable fluctuations, with benchmark U.S. crude prices rising approximately 4%. This surge was influenced by geopolitical tensions following the death of a key political figure attributed to escalating conflicts in the region that could potentially impact oil supply.
As prices adjusted, benchmark U.S. crude increased by 55 cents to $78.46 a barrel, while Brent crude, the international standard, rose by 59 cents to $81.43 a barrel.
The euro also dipped to $1.0782 from $1.0825.
