Global Stock Markets Rally on Expectations of Interest Rate Cuts

Price Decline and Monetary Policy Pivot Expected
US 3 Major Indexes and Asian Markets Rise

The global stock markets reached their highest level in two months amid expectations of price stability and monetary policy pivots in various countries. Analysts suggest that the preference for risk assets has increased as various economic indicators show that the overheated U.S. economy is cooling down, reducing the likelihood of further interest rate hikes.

On the 15th (local time), the Morgan Stanley Capital International All Country World Index (MSCI ACWI), a composite index of stock markets in 49 countries worldwide, closed at 679.93, up 0.6% from the previous session, marking the highest level since September. On the same day, all three major indices of the U.S. New York stock market, including the large-cap-focused S&P 500, closed higher.

Following the October Consumer Price Index (CPI) slowing to 3.2% from the previous month, the U.S. Producer Price Index (PPI) also declined by 0.5% compared to the previous month, easing the inflationary pressure that had been weighing on the stock market. One foreign media outlet evaluated, "The U.S. Federal Reserve (Fed) is expected to end its rate hikes, and the market is cheering the high possibility that the U.S. economy will achieve a soft landing without falling into a recession."

The previous day, the U.S. House of Representatives passed a temporary budget bill, alleviating concerns about a potential federal government shutdown. The U.S.-China summit held at the Asia-Pacific Economic Cooperation (APEC) meeting in San Francisco also helped reduce tensions in U.S.-China relations, providing upward momentum to the stock market. Capital Economics stated in an investor memo that "while the real economy remains trapped under the burden of high interest rates, consumer prices are expected to fall faster than market expectations."

UK inflation, which seemed difficult to control, also fell to its lowest level in two years. On the same day, the UK Office for National Statistics announced that the UK's October Consumer Price Index (CPI) recorded an annual rate of 4.6%, the lowest since October 2021 (4.2%). The decline in the inflation rate from the previous month (6.7%) was 2.1 percentage points, the largest since April 1992. Confirming that the inflation rate, which had surged to the 11% range just a year ago and had been a drag on the UK economy, has clearly eased, the UK FTSE 100 index rose 0.62% from the previous session. The strong performance of the UK stock market also helped the pan-European Euro Stoxx 50 index close up 0.55%.

Carlo Francini of Banca Ifis, a European investment advisory firm, said, "The market has begun to reflect the possibility that the U.S. and Europe will turn to interest rate cuts," adding, "Despite the still complex international situation with the wars in Ukraine and the Middle East and U.S.-China trade tensions, the global stock market rally is expected to continue into next year."

[Image source=Reuters Yonhap News]

Asian stock markets also rallied together. The MSCI Asia Pacific Index (excluding Japan) rose 2.85% to 504.87, marking the highest level since September. On the same day, major representative indices in Asia, including China, Japan, South Korea, and Taiwan, all rose. The Hong Kong Hang Seng Index (3.71%) and Japan's Nikkei Index (2.51%) closed with gains in the 2-3% range, while Taiwan's TAIEX (0.94%) and India's Sensex Index (1.14%) also rose around 1%. South Korea's KOSPI (2.20%) and KOSDAQ (1.91%) indices both increased by about 2%. However, as of 10:15 a.m. Korean time on the 16th, the MSCI Asia Index was moving slightly down (-0.14%).

Foreign media analyzed that the Chinese government's plan to inject 1 trillion yuan to stimulate the real estate market influenced the stock market boost. The strong economic data released on the same day also lifted investor sentiment. The National Bureau of Statistics of China announced that China's industrial production in October increased by 4.6% year-on-year, surpassing both the previous month's figure (4.5%) and the forecast (4.3%). Retail sales for the same month rose 7.6% year-on-year, significantly exceeding the previous month's figure (5.5%) and the forecast (7.0%).

HSBC economists noted in an investor memo, "In recent weeks, the Chinese government has clearly shown a stance of being more proactive in economic stimulus," adding, "As concerns about the real estate downturn persist, fiscal and monetary support measures by the authorities are expected to be further strengthened."