Stocks surge as Fed cuts interest rate after G7 virus pledge
Shares staged a second day of recovery after the US Federal Reserve cut its benchmark interest rate in a bid to shore up the its economy from the effects of coronavirus.
Shares in the FTSE 100 index traded about 180 points higher in mid-afternoon before closing 0.95% or 63.1 points higher at 6718.20.
In a statement, the Fed said it was a unanimous decision to cut rates by a half percentage point to a target range of 1% to 1.25%.
US stock also rose strongly on the announcement which came after G7 finance leaders and central banks announced that they are “ready to take action” to protect economies from the spread of the virus.
The Dow Jones Industrial Average was up or 1.20%, the S&P 500 1.24% and the Nasdaq Composite by 1.12%.
In a statement, the G7 said that it wanted to “reaffirm our commitment to use all appropriate policy tools to achieve strong, sustainable growth and safeguard against downside risks.
“Alongside strengthening efforts to expand health services, G7 finance ministers are ready to take actions, including fiscal measures where appropriate, to aid in the response to the virus and support the economy during this phase.
“G7 central banks will continue to fulfil their mandates, thus supporting price stability and economic growth while maintaining the resilience of the financial system.
“We welcome that the International Monetary Fund, the World Bank, and other international financial institutions stand ready to help member countries address the human tragedy and economic challenge posed by COVID-19 through the use of their available instruments to the fullest extent possible.
“G7 Finance Ministers and Central Bank Governors stand ready to cooperate further on timely and effective measures.”
James McCann, senior global economist at Aberdeen Standard Investments, said: “Clearly the Fed is alarmed by the risks posed directly by the coronavirus, but also indirectly via the panic that took hold of financial markets last week.
“If left unchecked this explosion in financial stress could have threatened the cycle. This step should provide some comfort to markets, boost borrowers and help support confidence.
“However, this is not a panacea. Cutting rates in a situation like we’re in now is a pretty blunt tool and you’d really want it to be combined with governments stepping in to act as well. By acting now, the Fed risks giving governments all the excuses they need to sit on their hands.”
Exante’s senior analyst, Collin Williams, added: “In a surprise move the Fed has cut rates by 0.5per cent to 1/1.25 per cent to combat coronavirus citing ‘evolving risks’. Only last week the Fed said the economy is strong and there is no need for a cut! This is the first outside meeting cut since 2009
“Gold is up, the dollar has tanked and people are watching stocks anxiously. After last week’s panic selling we had panic buying.
Expectations of a co-ordinated response by the world’s biggest economies helped boost shares in Asia overnight, while a rally in Tokyo faded due to lingering worries about the spread of the coronavirus in Japan.
Tokyo’s benchmark Nikkei 225 was 0.8% lower, the Hang Seng in Hong Kong was 0.3% higher, and China’s Shanghai Composite was up by 0.8%.