Stock markets rally as Fed affirms 3 rate cuts in 2024 | Swiss central bank surprises with rate cut | Nagel: Europe's economy more concerning than Germany
March 21, 2024
Daily coverage for the global derivatives industry
Stock markets rallied to new highs on Wednesday after US Federal Reserve policymakers reiterated they would be cutting interest rates three times this year, despite an uptick in inflation over the past two months. The central bank said it would hold its benchmark rate between 5.25% and 5.5%. The S&P 500 closed 0.9% higher, setting a new record while the Nasdaq Composite gained 1.3% after the Fed announced its decision.
The Swiss National Bank has reduced its benchmark interest rate by 25 basis points to 1.5%, the first cut for one of the 10 most-traded currencies since the end of the pandemic. The franc fell 1% against the euro after the announcement, reaching the lowest level since July, and fell 1.2% against the dollar to a four-month low.
German central bank president Joachim Nagel is more concerned about Europe's economy than Germany's, he told an event on Wednesday. "There's always talk about Germany being a 'sick man'," Nagel said. "I'm more worried that Europe is getting sick if we don't finally start doing our homework," he added, due to high taxes and increased bureaucracy.
Investors are increasingly drawn to US medium-term government bond funds as they seek protection from interest-rate uncertainty. Such funds saw $9.8 billion in inflows in January and February, outpacing inflows of $2.3 billion for long-term government bond funds and outflows of $3.5 billion for short-term government bond funds.
Regulators should consider a global approach when it comes to making rules for clearing firms, US Commodity Futures Trading Commission commissioner Summer Mersinger said. "These are very global markets, and we can never forget that," Mersinger said. "We have to look at everything we do from that perspective - how we make sure policies or regulations we put in place appreciate the global nature of these markets. We need to do so in a way where we are harmonizing and ensuring that these markets can continue to operate on a global basis and we are not somehow causing fragmentation because of location-based policies."
Japan's Nikkei index closed at an all-time high on Thursday, climbing just over 2% to 40,815.66 at the end of the trading session. It previously hit a record on March 4. The rally followed the US Federal Reserve's announcement it was holding rates and the Bank of Japan ending its negative rates regime.
Public sector borrowing in the UK increased more than expected in February to £8.4 billion, down from £11.8 billion a year ago but ahead of expectations of around £5.5 billion. The larger-than-expected deficit was boosted by the effect of past inflation and cost of living payments, data showed.
The European Central Bank's policy after June, when a rate cut is expected, still depends on data, said President Christine Lagarde. "When it comes to the data that is relevant for our policy decisions, we will know a bit more by April and a lot more by June," Lagarde said in a speech. "Our decisions will have to remain data dependent and meeting by meeting, responding to new information as it comes in. This implies that, even after the first rate cut, we cannot pre-commit to a particular rate path."
The upcoming switch to T+1 in the US is raising funding concerns for European index tracker fund managers. European markets will remain on a T+2 cycle, which could leave asset managers in need of a day's funding. This could prove especially tricky for index managers which automatically need to rebalance their holdings.
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