Global stock markets soar in reaction to US rate cuts

Stock markets across the world have been reacting very positively to the first benchmark rate cut in the United States since 2020.

After the US Federal Reserve carried out a 50 basis points cut on its benchmark rates, data from some of the leading global stock markets indicated an ongoing bullish rally, as expected. In the UK, the benchmark index, FTSE 100 posted a 1.02 percent gain as of 1.45 pm, while the FTSE All-Share Index also posted a 1.02 percent appreciation.

During the trading day, the FTSE 100 Index was just 0.5 percent off the year-high of 9,262.76, as it hit 9,220.31.

In Asia, the Hang Seng Index (HSI), which tracks the Hong Kong Stock Exchange, closed with a 2 percent gain, while the Shanghai Composite Index closed with a 0.69 percent gain. Shenzhen Composite Index posted a 1.58 percent gain during the day, with the Nikkei 225 index which tracks the Tokyo Stock Exchange recording a 2.13 percent gain.

The US markets are not left out, as the NYSE All-Share Index opened with a 2.09 percent, while NASDAQ opened with a 2.3 percent gain, according to the NASDAQ Composite Index. S&P 500 opened with a 1.57 percent gain, while the Dow Jones Industrial Average opened with a 1.2 percent gain.

Emerging markets

Emerging markets were not left out of the global stock market rally with the Johannesburg Stock Exchange advancing by 1.68 percent to record its best trading day in September. In Morocco, the stock market advanced by 0.76 percent. However, the Kenyan Nairobi Securities Exchange posted a 0.17 percent decline during the day. In Nigeria, the case is different, as the market backtracked on its bullish run to post a 0.23 percent decline with the NGX All-Share Index closing at 98,003.75.

Much ado about rate cuts

Since the start of 2024, experts and analysts have predicted a rate cut by the Jamie Powell-led Federal Reserve. However, the American central bank stuck with a hawkish stance on its interest rate, choosing instead to hold inflation increased from 3.09 percent in January 2024 to 3.48 percent in March 2024.

As inflation began to fall in April, there were strong calls for a rate cut even as interest rates in the country were at levels deemed unfriendly for businesses. In July, the Fed’s decision to hold rates had a rattling effect on the global stock market, considering that the US job figures also showed that the country’s unemployment had hit one of its worst post-COVID.

The combination of the job data plus the Fed’s decision led to apprehension that there was a potential recession in the US. On Monday, August 5, stock markets suffered the worst global stock market crash post-COVID, with the Tokyo Stock Exchange posting its one of its worst trading days in the 21st century. Since the July decision, it became quite evident that a rate cut was inevitable.

Effect on Dollar Bonds

While the rate cut didn’t affect Nigeria’s equities market, it had the maximum effect on Nigeria’s Eurobonds, with yield rates on the country’s Eurobonds driving down marginally since the start of the year. In 2024, interest rates on Nigeria’s Eurobonds have swung, with the rates peaking in the first week of August.

However, towards the end of the month, the rates began to swing to some of its lowest levels this year. As of September 18, the NOV 2025 Eurobond has an interest rate of 7.137 percent.

Away from Eurobonds, talks of a rate cut also enhanced Nigeria’s first domestic dollar-denominated bond, as the $500 million bond was oversubscribed by about 180 percent, with the Federal Government raising $900 million.
For a bond with a 9.75 percent coupon rate, it was a much more attractive investment than a US 10-year treasury note with yields between 4 percent- 4.2 percent. (BusinessDay)