The Japan Times - Europe stocks rally on Fed pivot, as ECB, BoE press pause

London also rallied as the Bank of England joined the European Central Bank and again pressed pause on interest rates, while the dollar lost ground.

Frankfurt's DAX index vaulted to 17,003.28 and the Paris CAC 40 struck 7,653.99, but both later dropped back for small gains as the ECB and the BoE elected as expected to hold fire on rates even while warning the inflation battle is not yet won.

ECB president Christine Lagarde warned that policymakers should not "lower our guard" in fighting inflation in comments dousing market hopes of early drops in interest rates next year.

She added rate cuts had not been discussed on fears inflation could pick up again in the near term.

In addition, the ECB cut its growth forecasts for this year and next, given the impact of a slew of recent rate hikes to the current benchmark deposit record high of four percent.

London's FTSE 100 stood 1.3 percent ahead mid-session after the BoE decided to keep its key rate at a 15-year pinnacle of 5.25 percent as UK inflation declines yet remains elevated, the judgment being monetary policy will likely need to be restrictive for an extended period.

Amid such caveats, "there were no (market) fireworks," noted Craig Erlam, senior market analyst with Oanda, whose global conclusion was the central banks "didn't give investors much to get excited about."

For Richard Flax, chief investment officer at Moneyfarm, the ECB "seems to be posturing itself to ‘out-hawk’ the Fed, with Lagarde ruling out rate cuts until data turns conducive... This puts the ECB at odds with current market expectations of meaningful rate cuts in 2024."

The US Federal Reserve, chaired by Jerome Powell, on Wednesday sprang a much-sought-after pivot as inflation also comes down in the world's biggest economy, in news which continued to dominate markets on Thursday.

The greenback retreated across the board with the euro and pound enjoying fresh strength, while oil prices spiked about two percent to rebound from recent six-month lows.

- 'Monster rally' -

"The Fed lit the touch paper for a monster rally as it greenlit market expectations for rate cuts next year," said Finalto analyst Neil Wilson.

"This was a major pivot. The Fed did not just say it's done; it embraced a much more dovish view."

After more than a year of hiking, Fed decision-makers at their last meeting of the year acknowledged that they were winning their battle against rising prices and discussed when to change tack to a looser monetary policy.

The central bank held rates at a 22-year high, as expected, and said the decision lets policymakers determine "the extent of any additional policy firming that may be appropriate".

- Rate-hike cycle 'is over' -

"While there had been some persistent doubts about the Fed's interest rate hikes, it has now become clear that the current cycle is over," noted ActivTrades analyst Ricardo Evangelista.

"Investors now want to know when the central bank will start cutting rates and how fast they will come down."

The news sparked a bullish surge on Wall Street, with the Dow ending at a record high of over 37,000, while the S&P 500 closed at a near two-year high.

The upbeat mood carried through to Asia, where Hong Kong, Sydney, Seoul, Singapore, Taipei, Manila, Bangkok, Mumbai and Jakarta all climbed. But Shanghai dipped on Chinese economic worries and Tokyo dropped on the stronger yen.

- Key figures around 1450 GMT -

New York - Dow: UP 0.3 percent at 37,200.22

London - FTSE 100: UP 1.3 percent at 7,641.51 points

Paris - CAC 40: UP 0.7 percent at 7,595.63

Frankfurt - DAX: UP 0.1 percent at 16,771.55

EURO STOXX 50: UP 0.6 percent at 4,557.26

Tokyo - Nikkei 225: DOWN 0.7 percent at 32,686.25 (close)

Hong Kong - Hang Seng Index: UP 1.1 percent at 16,402.19 (close)

Shanghai - Composite: DOWN 0.3 percent at 2,958.99 (close)

Euro/dollar: UP at $1.0951 from $1.0874 on Wednesday

Dollar/yen: DOWN at 142.08 yen from 142.89 yen

Pound/dollar: UP at $1.2707 from $1.2618

Euro/pound: UP at 86.19 pence from 86.18 pence

West Texas Intermediate: UP 3.0 percent at $71.60 per barrel

Brent North Sea crude: UP 3.0 percent at $76.48 per barrel

K.Hashimoto--JT