On Thursday, global financial markets experienced significant movements, with stock indexes hitting new highs and government bond yields generally decreasing.
This shift in the financial landscape came after the Swiss National Bank (SNB) announced a reduction in its main policy rate, marking a notable shift in central banking policy trends.
This decision came closely on the heels of the Federal Reserve’s announcement that it would maintain its forecast for interest rate reductions in 2024, leaving rates unchanged.
The impact of these decisions was broad, affecting currencies, stocks, and bonds across the globe. The U.S. dollar appreciated as the Swiss franc weakened, and the Japanese yen remained near its lowest point in approximately four months.
In the stock market, Wall Street, Japan, Europe, and gold all recorded new highs, propelled by a surge in risk appetite following the Federal Reserve’s dovish stance and the SNB’s surprising rate cut.
Joe Saluzzi from Themis Trading noted the unusual correlation between a rising dollar and climbing stock prices, attributing it to the unexpected news from the SNB.
Additionally, Federal Reserve Chair Jerome Powell’s comments on a slower reduction of the Fed’s balance sheet were interpreted as positive for the markets.
The Bank of England also contributed to the week’s financial news by keeping its rates steady, with a positive outlook on the British economy, prompting a rally in the FTSE 100 index and a depreciation in the pound.
The SNB’s decision to lower its rate led to a significant weakening of the Swiss franc and prompted a rise in the euro and dollar against it, marking a highlight in the week’s financial developments.
European stocks extended their gains, with Switzerland and the eurozone witnessing bond yield declines, reflecting a broad validation of current central bank policies against inflation and economic growth concerns.
Samy Chaar from Lombard Odier highlighted the comfortable position of central banks, especially the SNB, given its downward revision of inflation forecasts.
Following the Federal Reserve’s rate decision, market expectations have now turned towards potential rate cuts by both the Fed and the European Central Bank in their June meetings.
In response to these developments, major stock indexes like the Dow Jones, S&P 500, and Nasdaq posted gains, alongside advances in Asian markets.
The global stock index also rose, supported by positive economic indicators such as a drop in U.S. jobless claims and a strong manufacturing index report.
Interest rates saw mixed movements, with U.S. Treasury yields fluctuating throughout the day, reflecting ongoing adjustments in market expectations.
The dollar index strengthened, while gold prices reached new highs, underscoring the diverse impacts of central bank policies and economic indicators on global financial markets.