Global stocks gain on hopes of a slowdown in interest rate hikes

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Global stocks rose on Thursday as investors cheered the prospect that the US Federal Reserve could slow the pace of monetary policy tightening after two sharp rate hikes in a row.

The Fed raised its main interest rate by 0.75% on Wednesday for the second straight month, but Fed Chairman Jay Powell calmed markets by saying the US central bank was open to the possibility of lower increases in the future. Shares on Wall Street jumped after the announcement, while those in Asia and Europe followed suit on Thursday.

The regional Stoxx 600 in Europe gained 0.5% in early trading, with markets in Germany, France and the UK all rising. The MSCI Asia-Pacific index, meanwhile, gained 1%.

Global stocks have fallen this year as central banks moved to tackle soaring inflation with steep rate hikes, which economists said could weigh on growth and lead to a recession. The MSCI All-World index of global stocks has fallen more than 17% year-to-date as central banks in Europe and Asia join the Fed in raising rates.

But Powell’s comments on Wednesday gave sentiment a boost on Wall Street, where the benchmark S&P 500 rallied to end the day up 2.6% and the tech-focused Nasdaq Composite , rose 4.1%, marking its biggest daily gain in more than two years.

“At some point, you have to slow down. . . We could make another unusually large increase [in September] but it’s not a decision at all that we’ve made, we’re going to be driven by the data,” Powell said.

Traders and strategists said Powell’s suggestion that monetary policy decisions would depend on the data pointed to a lower likelihood of big rate hikes going forward.

“This implies less dramatic increases over the next three [Fed] meetings than the last two,” said Tai Hui, market strategist at JPMorgan Asset Management, adding that recent readings on “inflation and labor market dynamics. . . are currently signaling the need for a more cautious approach for next year.

The prospect of a slower rate hike by the Fed, which caused global investors to dump many Asian currencies in favor of the dollar, also helped bolster exchange rates in the region.

The Japanese yen rose 1.1% against the greenback to around ¥135 while the Chinese renminbi edged up 0.3% to 6.746 Rmb per dollar.

Futures markets pointed to weak trading on Wall Street when trading in New York opens later in the day. S&P 500 futures fell 0.2%, while those tracking the Nasdaq 100 fell 0.5%. The falls came after Facebook owner Meta said economic conditions were behind its first quarterly year-over-year revenue decline. Its shares fell about 5% in Frankfurt trading.

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