A wave of optimism lifted European stocks on Thursday after the Federal Reserve signalled the interest rate hiking cycle was over, and the central bank would start to cut rates in 2024.
Interest rate futures markets are pricing in up to six interest cuts by the Federal Reserve and European Central Bank in 2024, equating to 150bps in interest rate cuts.
The German DAX and French CAC hit intra-day all-time highs as the FTSE 100 rose 1.9% in early trade on Thursday.
“Equity markets have enjoyed a hearty boost after Federal Reserve chair Jay Powell indicated further rate rises were not needed. While the market was already pricing in rate cuts from 2024, investors welcomed Powell’s comments with open arms. Having it spelt out was music to their ears,” said Russ Mould, investment director at AJ Bell.
“The market has been waiting a long time for this pivot in monetary policy and it’s finally come. The news sent the Dow to a new record high and put the S&P within a whisker of the 4,766-closing price achieved on 31 December 2021, just before the sharp interest rate hiking cycle began.
“The attention now shifts to when we could see rate cuts and it looks like May could be the magic moment.”
On Thursday, markets were in a clear risk-on mode, with stocks surging higher and bond yields falling.
The optimism was reflected in a cyclical rally in FTSE 100 stocks, taking miners, housebuilders and retailers considerably higher.
Ocado was the top riser as the food distribution technology company cheered the prospect of lower interest rates. Ocado is classed as a tech stock by many and has suffered during the tightening cycle. Hopes of a lower risk-free rate in 2024 fired the stock up on Thursday, gaining 9%.
Antofagasta, Anglo American, Glencore and Rio Tinto added between 4%-7% as miners did much of the heavy lifting in the FTSE 100’s rally. Lowering borrowing costs will boost major construction projects and provide support for commodity prices and mining activities.
The same school of thought helped plant-hire company Ashtead 7% higher.
Other interest rate-sensitive sectors, including housebuilders and retailers, were among the risers as traders positioned for an improving environment for the consumer in 2024.
Taylor Wimpey jumped 4.5% and Barratt Developments gained 3.4%. DIY specialist Kingfisher jumped 6%, while Howden Joinery ticked 4% higher.
