Global Markets Anticipate Another U.S. Interest Rate Cut as Economic Outlook Shifts

Global stock markets wrapped up the week with widespread gains as investors bet on another Federal Reserve interest rate cut in the coming months. While US and European markets hit new record highs, warnings from Asia and the ongoing US government shutdown cast some uncertainty over the outlook.

Wall Street Momentum Continues

American investors kept pouring money into stocks this week. The Dow Jones and S&P 500 both climbed about 1.1%, while the Nasdaq jumped over 1.3% thanks to strong tech sector performance. AI and cloud computing companies led the charge.

But the gains weren't without some bumps. Tesla shares pulled back after a strong run-up, which analysts called a natural correction in a market that's still moving cautiously while waiting for key economic decisions.

Europe Hits New Records

European markets had an even better week. London's FTSE 100 touched historic highs and gained 2.2% for the week. Financial stocks bounced back, and rising metal prices boosted major mining companies.

British markets benefited from global investors shifting money from bonds to stocks as they wait for interest rate cuts. Across the continent, major European indexes closed higher despite ongoing concerns about weak economic growth and declining industrial production in some countries.

France's CAC 40 rose 0.31% and Italy's FTSE gained 0.50% in the final session, while Germany's DAX slipped just 0.1%.

Asian Markets Show Caution

Asia saw more modest gains compared to US and European markets. Tokyo and Hong Kong indexes posted slight increases, but Bank of Japan Governor Kazuo Ueda's warnings about external risks and global uncertainty raised questions about the region's growth momentum.

Ueda pointed out that global slowdown could hurt wage growth in Japan, which would complicate the central bank's plans to gradually raise interest rates. Japanese markets are also dealing with imported inflation pressures.

What's Next

Investors head into the new week with mixed feelings of optimism and caution. Markets could keep climbing, but any negative surprises in inflation data or corporate earnings might quickly end the rally and trigger corrections.

Central bank officials' comments about inflation and interest rates remain under close watch, along with developments in the US government shutdown that could add more uncertainty in the coming days.

Bank of America Global Research expects the Fed to cut rates again this October, which continues to fuel investor appetite for riskier assets over bonds.