Europe: Shares advance as global markets cheer Fed’s outsized rate cut

EUROPEAN stocks jumped on Thursday after the US Federal Reserve delivered a 50-basis-point rate cut and flagged that further easing would be measured, raising hopes of a soft landing for the American economy.

The continent-wide Stoxx 600 index closed 1.4 per cent up, its highest closing level in more than two weeks.

Most local bourses also clocked sharp gains, with Germany’s blue-chip benchmark jumping 1.6 per cent to 19002.38 points, an all-time closing high.

Growth-sensitive technology stocks jumped 3.5 per cent, in tandem with tech giants on Wall Street, while miners added 3 per cent after prices of most base metals rose with the long-awaited Fed rate cut and weakened the dollar.

Utilities and telecoms lagged with a more than 1 per cent fall each.

The US central bank kicked off its monetary-easing cycle on Wednesday with a jumbo reduction that brought the benchmark policy rate to 4.75 to 5.00 per cent range.

Fed Chair Jerome Powell said this was meant to show policymakers’ commitment to sustaining a low unemployment rate now that inflation has eased.

“The September FOMC meeting signals an important dovish shift in the Fed’s reaction function,” said Frederik Ducrozet, head of macroeconomic research at Switzerland-based Pictet Wealth Management.

“Chair Powell wants to be more pre-emptive in securing a soft landing and his tolerance for further softness in the labour market seems quite low.”

Following the Fed’s move, analysts also wondered how the European Central Bank (ECB) would proceed after it had opted to cut rates by a modest 25 bps in June and September.

“The Fed’s determination and the acceleration of disinflation in the euro area will probably lead the ECB to dial back its restrictiveness more rapidly in 2025,” added Pictet’s Ducrozet.

Meanwhile, the Bank of England kept interest rates at 5.0 per cent, saying it would be careful about future cuts, and also held off from running down its bond holdings at a faster pace.

UK’s blue-chip FTSE 100 ended 0.9 per cent higher, while the pound strengthened 0.5 per cent against the dollar.

Norway’s central bank also held its policy interest rate unchanged at a 16-year high of 4.50 per cent and said any cuts must wait until the first quarter of next year. Norway’s benchmark bourse closed 0.5 per cent up.

Among other headlining stocks, Italy’s Campari, whose shares had fallen more than 7 per cent in the last session, jumped 9.5 per cent after its majority shareholder said it would buy shares worth up to 100 million euros (S$143.4 million) in the spirits maker.

Poland’s biggest e-commerce platform Allegro dropped more than 8 per cent after forecasting slower growth at home, its largest market, in the current quarter, despite beating second quarter earnings estimates. REUTERS