Global Stocks Rise Despite Eurozone Weakness; Fed Rate Cut Justification Boosts Sentiment

Global stock markets maintained their upward trajectory on Monday, seemingly unfazed by disappointing economic data from the Eurozone, as positive sentiment surrounding the Federal Reserve’s recent interest rate cut continued to buoy investor confidence.

Three key Fed policymakers took the stage on Monday to justify last week’s substantial half-point rate cut, the largest since the onset of the pandemic. Their message was clear: the move was not a sign of panic but a calculated measure to ensure the sustainability of the emerging economic equilibrium.

Minneapolis Fed President Neel Kashkari characterized the cut as the “right decision,” while his Chicago counterpart, Austan Goolsbee, hinted at the possibility of “many more rate cuts over the next year.” Atlanta Fed President Raphael Bostic echoed this sentiment, highlighting the need for monetary policy to “normalize” as inflation and unemployment approach their target levels.

These reassurances appeared to resonate with investors who had grown increasingly apprehensive about the potential for a recession in the world’s largest economy. “Investors want confirmation that the rate cut was a proactive measure, not a reactive response to an impending crisis,” explained Quincy Krosby, chief global strategist at LPL Financial.

The Dow Jones Industrial Average, the S&P 500, and the tech-heavy Nasdaq Composite all closed in positive territory, extending their gains from the previous week.

However, the same optimism did not extend to the Eurozone. A closely watched survey of purchasing managers revealed a sharp contraction in business activity, driven primarily by stagnation in the services sector and a deepening downturn in manufacturing. This news sent the euro tumbling against the dollar, which was further bolstered by rising U.S. Treasury yields.

Market observers will now be closely watching upcoming U.S. economic data releases, particularly the core personal consumption expenditures (PCE) index, the Fed’s preferred inflation gauge, due on Friday.

Meanwhile, in other parts of the world, central banks are grappling with their own unique challenges. China’s central bank surprised markets by opting for a modest reduction in its 14-day repo rate instead of a more aggressive cut to longer-term rates. This move, while signaling a commitment to supporting the economy, underscores the delicate balancing act faced by policymakers worldwide as they navigate the uncertain path toward economic recovery.

Key Takeaways:

• Global stocks continued to climb, buoyed by positive sentiment surrounding the Fed’s recent rate cut.
• Fed officials defended their decision, emphasizing that it was a calculated measure, not a sign of panic.
• The euro weakened against the dollar after disappointing Eurozone business activity data.
• All eyes are now on upcoming U.S. economic data releases, particularly the core PCE inflation gauge.
• Central banks around the world are carefully calibrating their monetary policy responses to support economic recovery.