Stock markets reward the Fed: Milan closes up 0.8 per cent, whilst on Wall Street the Nasdaq is up 1.69 per cent

(Il Sole 24 Ore Radiocor) - The fall in oil prices and Treasury yields has lifted investor sentiment, following the monetary tightening announced the day before by the Fed, which reassured investors of the US central bank’s commitment to keeping inflation in check. Milan closed up 0.8 per cent, whilst other major European stock markets also made gains. Chairman Kevin Warsh opted to raise interest rates for the first time since the summer of 2023, disregarding the directives of US President Donald Trump, who had instead called for a cut in the cost of borrowing. The decision helps to ease pressure on forward yields, with the yield on 10-year US Treasuries falling back below 5% (to around 4.94%). “If a central bank lacks credibility and investors doubt its ability or willingness to combat inflation,” Vontobel’s analysts point out, “they will demand a higher premium for committing capital over the long term.” According to Robeco analysts, “the market reaction has, on the whole, been consistent with the Fed maintaining its credibility”. The head of the Washington-based bank reiterated that inflation “is too high and has been for too long”, a statement that did not go down well with the White House but which the market, on the contrary, welcomed. On the energy front, crude oil prices – whilst remaining high – fell for the second day running, ahead of the partial restoration of the Saudi East-West oil pipeline, which Saudi Arabia expects to complete within a few days.

Meanwhile, the Bank of England has decided to keep interest rates unchanged, despite inflation picking up in August. On Friday, it will be the Bank of Japan’s turn to speak, and, as expected, it is likely to announce a rate rise, partly to defend the yen. On Monday, it will be the turn of the People’s Bank of China, the country’s central bank.

Wall Street closed higher. The Nasdaq index rose by 1.69 per cent to 26,418 points, the Dow Jones by 0.62 per cent to 51,779 points, and the S&P by 1.13 per cent to 7,637 points. The markets regained momentum following yesterday’s fall, which was triggered by the Fed’s decision to raise interest rates.

The yield on the 10-year Treasury bond has fallen below 5 per cent. In the equity market, shares in Generac Hold – a generator manufacturer – is soaring following the agreement with Amazon to supply emergency generators for its data centres. Shares in Nike is gaining ground following the appointment of Alexandre Arnault, deputy CEO of Moët Hennessy (LVMH), to its board of directors. Arm Holding is also up, following statements by its chief executive, Rene Haas, who is increasingly confident that the company can meet demand for its new data centre chip. Fluence Energy is struggling following a downward revision of its full-year forecasts.

On the macro front, the number of workers claiming unemployment benefits for the first time fell by 10,000 in the week ending 12 September, to 196,000 (seasonally adjusted), according to the Department of Labour. The market had expected a figure of 207,000. The figure for the previous week was confirmed at 206,000. The total number of workers receiving unemployment benefits – for the week ending 5 September, the latest for which figures are available – fell by 39,000 to 1,730,000.