European stocks fell on Thursday after the Federal Reserve indicated it would slow the pace of rate cuts, sparking a volatile session for global markets. The 10-year U.S. Treasury yield also rose to its highest point since May, adding to investor nervousness. In Frankfurt, Germany, the German share price index DAX, prominently decorated for the Christmas season, was negatively impacted.
Tech stocks led the decline, as sensitive sectors reacted sharply to the Fed’s announcements. The Bank of England (BoE) is also anticipated to make a significant decision at 1200 GMT, contributing to the turbulence in the markets. Meanwhile, the volatility gauge for Euro zone stocks has jumped, reflecting the uncertain sentiment among investors.
Asia-Pacific stocks and currencies fell Thursday amid a broader market sell-off after the U.S. Federal Reserve delivered its third consecutive rate reduction and signaled fewer rate cuts ahead. Investors assessed the Bank of Japan’s (BOJ) decision to keep its policy rate unchanged at 0.25% for the third straight meeting. The Japanese yen dipped 0.74% to 155.94 against the greenback, hitting a one-month low, as BOJ Governor Kazuo Ueda said the central bank will continue raising policy rates if the economy moves in line with its forecast.
In response, Japan’s Nikkei 225 lost 0.69% to end at 38,813.58, while the Topix was down 0.22%, finishing at 2,713.83. In South Korea, the Kospi index dropped 1.95% to close at 2,435.93, and the Kosdaq index declined 1.89% to 684.36. The South Korean won hovered near its weakest level since March 2009, and was last trading at 1,452.33 on the U.S. dollar.
Australia’s S&P/ASX 200 fell 1.7% to close at 8,168.2.
Hong Kong’s Hang Seng Index declined 0.36% in the final hour of trade, while mainland China’s CSI 300 index edged up slightly to close at 3,945.46. The Hong Kong Monetary Authority on Thursday delivered a 25 basis points rate cut in lock-step with the Fed, as the country’s currency is tightly pegged to the U.S. dollar. Elsewhere, New Zealand’s economy sank into a recession, as the prior quarter data from Stats NZ showed two consecutive quarters of decline.
Overnight in the U.S., market indices tanked following the Federal Reserve’s rate cut.
European stocks drop on Fed signals
The Dow Jones Industrial Average plunged by 1,123.03 points, or 2.58%, to 42,326.87, marking its first 10-day losing streak since 1974.
The S&P 500 dropped 2.95% to 5,872.16, while the Nasdaq Composite lost 3.56% to 19,392.69. The broad sell-off came after the Fed lowered its overnight borrowing rate by 25 basis points and indicated it would cut rates only twice in 2025, fewer than its previous forecast of four cuts. Fed Chair Jerome Powell remarked, “We moved pretty quickly to get to here, and I think going forward obviously we’re moving slower,” during the post-meeting press conference.
In currency markets, the Chinese offshore yuan weakened past 7.3 to the U.S. dollar after the Fed’s rate cut. The People’s Bank of China is set to release its monthly fixing of benchmark lending rates on Friday. The one-year loan prime rate, which influences corporate and most household loans, was maintained at 3.1% last month, while the five-year loan prime rate, a benchmark for mortgage rates, stood at 3.6%.
Chinese authorities have vowed to adopt a “moderately loose” monetary policy stance, leading to expectations of further rate cuts. The Hong Kong Monetary Authority’s move to cut its base interest rate by 25 basis points to 4.75% was in alignment with the Fed’s decision. The city’s monetary policy moves in tandem with the U.S. as Hong Kong’s currency is pegged to the greenback within a tight range.
During his press conference, Powell highlighted a more cautious approach to future rate adjustments: “As we think about further cuts, we’re going to be looking for progress on inflation… We have been moving sideways on 12-month inflation.”
The dollar index was on track to end Wednesday at its highest closing level in more than two years, last trading around the 108 level. All 11 S&P 500 sectors closed lower following the Fed’s decision, led by consumer discretionary and real estate sectors falling around 4% and 2.9%, respectively.
Information technology and communication services were each down about 2.4%, with financials, materials, and industrials recording losses around 2%. Asia-Pacific markets reflected the broader unease seen in the U.S., reacting to significant central bank decisions. While the Fed and BOJ’s moves provided some anticipation, their cautious outlooks and economic data led to considerable market turbulence.
