An interest rate cut weakens the country’s currency but is great news for equities markets. US government officials hope that the Fed’s decision will keep the largest economy of the world growing and will help to lift the housing market from recession. The announcement brought optimism back on the stock markets. The Dow Jones Industrial Average advanced 2.51% to 13,739.39, most of it in the last two hours of trading. The S&P 500 jumped 2.92% to 1,519.78. The reduction of the federal funds rate was really a blessing for the markets. It seems that the Fed is doing everything to avoid recession.

US stocks rally had its positive effect on equities worldwide. The Nikkei 225, Japan’s benchmark index, shoot up 3.7% to 16,381.54. It is the biggest advance since March of 2002. European indices opened in the green today in the morning. UK’s FTSE 100 gained 2.0%, France’s CAC 40, climbed 2.1%, and German’s DAX increases 1.7%. The Polish blue-chip index, the WIG 20, opened over 2.0% higher than yesterday’s closing level. The index of European companies, the Dow Jones Stoxx 600, gained 2.1% today in the morning. The outlook for the rest of the week also looks bright.

Wall Street got what they wanted – an interest rate hike. Of course, the American dollar tumbled to lowest level in history against the euro – 1.3986. A weaker dollar and lower cost of credit certainly is great news for American companies. The Fed was under pressure to fight the possible recession. Actually, the word “recession” can be used to describe the current situation on the US housing market. Ther interest rate cut is supposed to lift the economy back to the level, at which it was a couple of months ago. The good news is that equities markets all around the world are benefiting from the US stocks rally. We will see how long it will last.

Adam Narczewski