Stocks in Europe surge following record-breaking gains on U.S. stock exchanges
Global Stock Markets Rise on US Rate Cut Hopes and Trade War Truce
After a series of significant events, global stock markets have seen a surge in activity, with the US stock market hitting new records on Wednesday. This upturn can be attributed to a combination of factors, including improved inflation data, relief over an extended truce in President Trump's trade war with China, and the prospect of a US interest rate cut.
The recent hope for a US rate cut has emerged from some policymakers favoring a possible reduction due to signs of slowing economic growth and inflation moving closer to target. However, the Federal Reserve has yet to lower rates in its latest meeting, maintaining the federal funds rate at 4.4% as of late July 2025.
This cautious optimism about easing monetary policy has generally been interpreted by global stock markets as a positive signal. Lower US interest rates can reduce borrowing costs, stimulate economic activity, and improve corporate earnings prospects worldwide. However, since the Fed has not officially cut rates yet but indicated some openness among members to a future cut, market reactions may be mixed—buoyant on hopes but tentative pending actual policy changes.
The better-than-expected inflation report raised hopes for a potential interest rate cut by the Federal Reserve in September. In addition, a recent rally in share prices has been partly due to relief over an extended truce in President Trump's trade war with China. The US and China agreed to a 90-day extension of their pause in drastically higher tariff rates.
The future for the Dow Jones Industrial Average and the S&P 500 is little changed, with the Dow Jones Industrial Average climbing 1.1% to 44,458.61, and the S&P 500 rising 1.1% on Tuesday, reaching a new all-time high of 6,445.76. The Nasdaq composite also jumped 1.4% to set its own record of 21,681.90.
Tokyo's Nikkei 225 added to its record set a day earlier, and Hong Kong's Hang Seng surged 2.6% after the tariff extension. The US benchmark crude oil dropped 26 cents to $62.91 per barrel early Wednesday.
However, critics argue that the broad US stock market is expensive after its surge from April. The most recent jobs report was weaker than expected, and US consumers experienced a 2.7% increase in prices for groceries, gasoline, and other costs of living in July, the same rate as June. The consumer price index in July showed a moderation.
Despite these concerns, the US dollar fell to 147.24 Japanese yen from 147.84 yen, while the euro climbed to $1.1727 from $1.1677, indicating a positive sentiment towards the US economy.
In conclusion, the prospect of a US rate cut and the extended truce in the trade war have lifted global stock market sentiment somewhat. However, the persistence of high current rates and Fed reservations means markets remain watchful and somewhat volatile.
Investors are optimistic about the potential impact of a US interest rate cut on businesses, as lower rates could reduce borrowing costs, stimulate economic activity, and improve corporate earnings prospects worldwide. However, the cautious approach of the Federal Reserve has kept markets cautious, as a formal rate cut has not yet been implemented.
The recent truce in President Trump's trade war with China has also positively influenced the finance industry, with relief over the extended pause in drastically higher tariff rates driving up share prices in global stock markets.
