The loosening cycle has begun. Last month, the Federal Reserve cut interest rates for the first time since March 2020. The 0.5 percentage point cut met best expectations and opened the way for another cut, possibly 0.5 points again, at the next meeting in early November.
The Chinese authorities also got involved in the act, implementing significant financial easing measures to stimulate the sluggish economy. They cut the one-year medium lending facility rate by 0.3 points and reduced the reserve requirement rate of banks by 0.5 points. The effect of this is to inject around Rmb1tn yuan into the economy. Other measures included reduced mortgage rates, lower deposits required for property purchases and some support for the stock market. In the short term, at least, it worked. The Shanghai Composite was up 25 per cent in the last two weeks of September. The Hang Seng gained a similar amount. Those returns dwarfed those of other equity markets. The Nasdaq was up 2.7 per cent, and the S&P 500 2 per cent.
European markets, helped by a European Central Bank (ECB) interest rate cut, made further gains, with the Dax up 2.2 per cent and the Cac up 0.2 per cent. The Italian MIB was, however, down 1.8 per cent. Japan slipped into the red (1.9 per cent) on the announcement of a snap general election on 27 October.