Global Markets Fluctuate After Fed Policy Rate Reduction
(MENAFN) Global markets mostly turned positive on Wednesday after the Federal Reserve lowered its policy rate by 25 basis points, matching analyst expectations. Investors, however, remained cautious ahead of Thursday’s European Central Bank (ECB) rate announcement.
The Fed reduced its benchmark interest rate to a range of 3.75% to 4%, citing “increasing economic activity, slowing employment growth, and rising inflation amid high uncertainty over the economic outlook.”
In a major policy shift, the central bank said it would halt balance sheet reductions starting Dec. 1, a move expected to reverberate across bond markets. During 2020–21, the Fed’s large-scale bond purchases injected liquidity into financial markets but also fueled inflation. Analysts note that ending the balance sheet reduction could alleviate pressures in the US banking system and soften the dollar’s trajectory, particularly amid recent repo market stress.
Fed Chair Jerome Powell emphasized ongoing caution, stating, “A rate cut at the December meeting is not certain due to ongoing economic uncertainty,” and added that “activity will remain under pressure as long as the federal government shutdown continues.”
On the geopolitical front, US President Donald Trump met Chinese President Xi Jinping in South Korea for their first face-to-face discussions since Trump’s return to office in January. Xi stressed, “The US and China should be partners and that China’s development poses no threat to the US’ ‘Make America Great Again’ vision,” and added he is “ready to work with Trump to ensure smooth US–China relations and to promote the development of the two countries.”
Trump confirmed progress, saying the leaders “reached agreements on several topics and announced plans to reduce fentanyl-related tariffs on Beijing,” and revealed plans for an April visit to China.
In the corporate sector, Nvidia saw its market capitalization reach $5.03 trillion after shares jumped 3% on Wednesday. The rally followed announcements of $500 billion in new orders for its Blackwell and Rubin AI chips, along with new strategic partnerships.
The tech surge helped the Nasdaq close at a record high, up 0.55%, while the S&P 500 remained largely flat and the Dow Jones edged down 0.16%. U.S. futures opened slightly lower on Thursday.
Commodity markets showed mixed signals. Gold fell 0.55% on Wednesday after Powell’s comments, then rebounded 0.8% to $3,961 per ounce on Thursday. The 10-Year U.S. Treasury yield climbed above 4% to 4.07%, the U.S. Dollar Index slipped 0.2% to 99, and Brent crude dipped 0.2% to $64.1 per barrel amid forecasts of higher oil supply.
European equities were mixed ahead of the ECB’s rate decision. Analysts predict that the bank will maintain its three key rates at Thursday’s meeting. Germany and the broader eurozone are set to release economic growth data, with Germany also posting preliminary October consumer inflation figures.
Wednesday’s European trading saw the FTSE 100 rise 0.61% and the FTSE MIB 30 climb 0.26%, while Germany’s DAX 40 fell 0.64% and the CAC 40 dropped 0.19%. Futures markets in Europe opened lower on Thursday.
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