By Chuck Mikolajczak
NEW YORK (Reuters) -Global stocks held gains and were on pace to advance for a fifth straight session on Wednesday, while the U.S. dollar remained higher after the U.S. Federal Reserve cut interest rates and ahead of earnings from several U.S. megacap companies.
The central bank cut rates by 25 basis points, noting the limited data visibility due to the current government shutdown, and said it is ending the drawdown of its $6.6 trillion balance sheet, also known as quantitative tightening (QT) amid evidence money market liquidity conditions have begun tightening and bank reserve levels dropping.
“Rather than risk a blow-up in short-term debt markets, it only made sense to stop QT. There were already some signs of stress, so there was little to be gained in pushing QT further,” said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin.
“In a head nod to the dearth of data, the Fed had to qualify the entire statement by saying ‘available indicators,’ because there aren’t a lot of them with the government shutdown. The dissents weren’t surprising, so this was a no surprise kind of statement.”
On Wall Street, U.S. stocks were higher, continuing their recent rally that has pushed major indexes to record levels on cooling trade tensions between the U.S. and China, expectations of a rate cut from the Fed, outsized spending related to artificial intelligence, and a solid start to the corporate earnings season.
Investors now await comments from Fed Chair Jerome Powell for signs on the path of interest rates following the policy announcement and any updates on its quantitative tightening (QT) program.
While there has been a shortage of economic data, including on the labor market, due to the shutdown, a slew of major U.S. companies have announced layoffs, including Amazon, earlier this week.
Nvidia became the first company to ascend to the $5 trillion valuation mark on Wednesday, with shares up 4.7% to build on a 5% jump in the prior session after CEO Jensen Huang said the AI chip leader will build seven new supercomputers for the U.S. Department of Energy, and the company has $500 billion in bookings for its chips.
Fellow megacap companies Microsoft, Alphabet and Meta are due to report earnings after the closing bell on Wednesday.
The Dow Jones Industrial Average rose 119.78 points, or 0.25%, to 47,826.58, the S&P 500 rose 10.58 points, or 0.15%, to 6,901.47 and the Nasdaq Composite rose 121.47 points, or 0.51%, to 23,948.97.
MSCI’s gauge of stocks across the globe was up 1.69 points, or 0.17%, at 1,015.29 after hitting an intraday record of 1,017.24 while the pan-European STOXX 600 index closed down 0.06%.
Policy announcements from the Bank of Japan and European Central Bank are due later this week.
The dollar index, which measures the greenback against a basket of currencies maintained gains after the Fed statement and was last up 0.18% to 98.85, with the euro down 0.07% at $1.1642.
Against the Japanese yen, the dollar strengthened 0.17% to 152.36, while sterling weakened 0.41% to $1.3213.
The Canadian dollar strengthened 0.21% versus the greenback to C$1.39 per dollar after the Bank of Canada reduced its key overnight interest rate to 2.25% on Wednesday, as widely expected, and signaled this could mark an end to its cutting cycle unless the outlook for inflation and the economy changes.
U.S. President Donald Trump and South Korean President Lee Jae Myung finalized details of their fraught trade deal at a summit in South Korea, and the U.S. president also sounded an optimistic note about a looming summit with China’s Xi Jinping.
In U.S. Treasuries, the yield on benchmark U.S. 10-year notes extended gains after the policy announcement and was last up 3.5 basis points to 4.018% as it holds near lows not seen since April. The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, gained 2.6 basis points to 3.52%.
U.S. crude advanced 0.73% to $60.59 a barrel and Brent rose to $65.02 per barrel, up 0.96% on the day.
(Reporting by Chuck Mikolajczak; additional reporting by Elizabeth Howcroft in Paris, Ankur Banerjee and Rae Wee in Singapore; Editing by Gareth Jones, Kirsten Donovan)
