Global Stock Markets Rise Amid Growing Expectations of Fed Rate Cuts Despite US Tariffs
Global Stock Markets Rise Amid Growing Expectations of Fed Rate Cuts Despite US Tariffs
Global stock markets rose on Tuesday as investors increasingly bet that the Federal Reserve will cut interest rates next month, despite ongoing concerns about the US economy and the impact of Donald Trump’s tariffs.
The gains followed a strong rebound on Wall Street after a sharp sell-off on Friday, which was triggered by weaker-than-expected US job creation data for July. The revision of previous employment figures also raised concerns about the health of the world's largest economy.
Despite these worries, markets are pricing in a high probability of a 25-basis-point rate cut in September, with around 95% of traders betting on such a move, according to Bloomberg. Some analysts even speculate that the Fed might go as high as a 50-basis-point cut if conditions deteriorate further.
Stephen Innes, a strategist at SPI Asset Management, noted that the narrative has shifted rapidly: weak jobs data now signals a potential rate cut, which in turn could fuel a risk-on sentiment in markets. However, he also warned that if the cuts are a response to a deepening labor market crisis, the risks could be far greater than investors are currently acknowledging.
“That dichotomy – between rate cuts as stimulus and rate cuts as warning flare – is now front and centre,” Innes said. “If the Fed moves proactively to shield markets from the tariff storm and weak labor, the equity rally has legs. But if policymakers are reacting to a sharper downturn that is in full swing, the runway shortens quickly.”
Major global markets, including Tokyo, Hong Kong, Shanghai, Sydney, and Seoul, saw gains. European markets such as London, Paris, and Frankfurt also posted positive returns. However, not all analysts are convinced that the Fed will act as aggressively as the markets are anticipating.
Lazard’s chief market strategist, Ronald Temple, expressed skepticism, stating that he believes the Fed will not cut rates at all this year due to inflationary pressures from tariffs and a stable unemployment rate. He emphasized the need for more clarity before any rate cuts are considered.
Meanwhile, economists at Bank of America acknowledged the challenges posed by the revised July jobs report but remained cautious. They suggested that while the labor market may have stalled, the most likely scenario still involves a delayed Fed response to the evolving economic landscape.
Traders are also closely watching trade negotiations between the US and its trade partners, especially after Trump imposed tariffs ranging from 10% to 41% on several countries. India, which faced threats of higher tariffs over its oil imports from Russia, saw its stock market dip slightly.
Here are some of the key market movements on Tuesday:
- Tokyo – Nikkei 225: UP 0.6% at 40,549.54
- Hong Kong – Hang Seng Index: UP 0.7% at 24,902.53
- Shanghai – Composite: UP 1.0% at 3,617.60
- London – FTSE 100: UP 0.3% at 9,152.80
- New York – Dow: UP 1.3% at 44,173.64
While the recent data has raised questions about the US economy, it has also intensified expectations for a Fed rate cut. Investors are now closely watching how the central bank will navigate the complex interplay of inflation, employment, and trade policy in the coming months.
As markets continue to shift, the coming weeks will be critical in determining whether the Fed’s rate cut expectations will materialize and how global markets will react to the evolving economic landscape.
