By Pete Schroeder
(Reuters) -Wall Street eked out gains and gold surged to a record high on Thursday as investors awaited a Federal Reserve interest rate cut next week.
Stock Indexes Close Higher
Major U.S. stock indexes spent much of the day in mixed territory before closing higher, after a rate cut from the European Central Bank and slightly higher-than-expected U.S. producer prices. This kept outlooks locked on a modest Fed rate cut at its policy meeting next week.
At closing, the Dow Jones Industrial Average was up 0.58%, the S&P 500 was up 0.75%, and the Nasdaq was up 1% on the back of strong tech stock performance. MSCI’s gauge of global stocks was up 1.08%.
Insight: The strong tech stock performance was driven by positive earnings reports from major tech companies, showing resilience despite economic uncertainties.
ECB Rate Cut and Future Outlook
Earlier in the day, the ECB announced its second rate cut in three months, citing slowing inflation and economic growth. The central bank’s cut was widely expected, but it did not provide much clarity about its future steps.
The ECB’s decision on a quarter-point rate cut was in line with expectations, but uncertainty remains regarding the bank’s future actions this year.
Federal Reserve Rate Cut Expectations
Investors turned their attention to the Fed, which will announce its interest rate policy decision at the close of its two-day meeting next Wednesday. The Fed is expected to cut rates for the first time since 2020. Recent economic data suggests a more modest 25 basis point reduction next week, rather than a 50 basis point cut.
Investec Economics noted that a 25bp reduction is favored due to the current economic backdrop, suggesting a cautious approach to rate cuts at this stage.
Oil and Gold Prices Surge
Oil prices rose nearly 3% on speculation about the impact of Hurricane Francine on U.S. output in the Gulf of Mexico. Gold prices also jumped to record highs, as investors sought the precious metal as a safe-haven investment ahead of potential Fed rate cuts.
Insight: A lower interest rate environment makes gold more attractive, and the possibility of frequent rate cuts reinforces its appeal as a hedge against economic uncertainty.
In the bond market, 2-year Treasury yields rose 1.2 basis points to 3.6579%, while 10-year yields increased to 3.683%.
Overall, the market reactions highlight the anticipation surrounding central bank actions and their potential impact on various asset classes. This dynamic environment underscores the importance of closely monitoring economic indicators and central bank communications for investment decisions.
