Global stocks surged Friday after China cut interest rates for the sixth time in a year, adding to optimism that the European Central Bank was ready to expand its stimulus program in the coming months in order to boost the economy.
The People’s Bank of China (PBOC) lowered its one-year benchmark lending rate by 25 basis points to 4.35%, effective October 24. China also lowered its one-year deposit rate by 25 basis points to 1.50%.
With Friday’s rate cut, China has eased monetary policy six times since November, the most aggressive easing campaign since the 2008-2009 global financial crisis. Earlier this week Beijing announced that economic growth slowed to a six-year low in the third quarter.
Global markets were already upbeat after European Central Bank President Mario Draghi affirmed Thursday that the central bank was ready to expand its stimulus program “if warranted.”
In a press conference following the ECB rate meeting, in which the overnight rate was left unchanged, Draghi said:
“While euro area domestic demand remains resilient, concerns over growth prospects in emerging markets and possible repercussions for the economy from developments in financial and commodity markets continue to signal downside risks to the outlook for growth and inflation… The governing council is willing and able to act by using all the instruments available within its mandate, if warranted, in order to maintain an appropriate degree of monetary accommodation.”
Prospects for additional stimulus sent US stocks soaring on Thursday, with the Dow Jones Industrial Average posting its biggest single-day rally since September 8. The benchmark gauge added 320.55 points or 1.9% to close at 17,489.16. The S&P 500 Index also rallied 33.57 points or 1.7% to 2,052.51.
The momentum continued on Friday, with American stock futures rallying across the board.
Asian stocks also advanced Friday, with China’s Shanghai Composite Index climbing 1.3% to 3,412.43. Hong Kong’s Hang Seng Index closed up more than 300 points or 1.3% to 23,151.94.
Tokyo’s Nikkei 225 Index surged nearly 400 points, or 2.1%, to 18,825.30.
European shares also advanced sharply, with London’s FTSE 100 Index climbing 1.3% in intraday trade. Germany’s DAX surged 3%, extending its four-week winning streak to more than 12%. The CAC 40 Index in Paris and IBEX 35 in Madrid each rallied by 1.7% or more.
The pan-European STOXX 600 Index was up 2.2%.