The S&P/ASX 200 Index (ASX: XJO) is currently up 0.19% in morning trade after briefly notching up a new intra-day record of 8,186.9 points.
The benchmark Aussie index looks to be getting a boost after the United States Federal Reserve surprised to the upside with a full 0.50% interest rate cut yesterday (overnight Aussie time).
The Federal Open Market Committee (FOMC) voted to decrease the official funds rate to the new 4.75% to 5.00%, with the vote 11 to 1 in favour.
After hiking interest rates 11 times over the past four years to bring down runaway inflation, the official US interest rate was at its highest level in 20 years.
But with inflation coming down to 2.5%, approaching the Fed's 2% goal, so too are US interest rates.
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ASX 200 higher on US interest rate cut
The ASX 200 is not following in the footsteps of the S&P 500 Index (SP: .INX) and the tech heavy Nasdaq Composite Index (NASDAQ: .IXIC), which both closed down 0.3% overnight following the Fed's announcement.
The loss in US markets may seem counterintuitive at first.
After all, don't stock markets tend to respond favourably to lower interest rates?
Well yes.
And no.
There are a number of factors to consider here.
First, what investors had already been pricing in.
Second, what the expectations are for interest rates, and the US economy, in the months ahead.
Now markets had been split on whether we'd see a 0.25% or a 0.50% cut today. And Powell clearly pleased international and ASX 200 investors on that front.
He stated (quoted by Bloomberg):
This decision reflects our growing confidence that with an appropriate recalibration of our policy stance, strength in the labour market can be maintained in a context of moderate growth and inflation moving sustainably down to 2%.
But then he tempered investor expectations, cautioning, "I do not think that anyone should look at this and say, 'Oh, this is the new pace.'"
What are the experts saying?
Commenting on the Fed's decision, the Bloomberg Economics team said:
The updated dot plot suggests a gradual path of rate cuts going forward, suggesting the Fed sees the 50-basis-point move as a pre-emptive one that will be enough to stabilise the labour market.
Jack McIntyre, portfolio manager at Brandywine Global Investment Management, added:
A more prolonged and predictable easing cycle is at hand. It now will be a battle between market expectations and the Fed, with employment data – not inflation data – determining which side is right.
And ANZ Group Holdings Ltd (ASX: ANZ) economists Brian Martin and Daniel Hynes noted (quoted by The Australian Financial Review), "While the Fed's dot plot projections point to two more 25 basis point cuts this year, markets are still banking on around 70 basis points of cuts."
How are these top ASX 200 stocks responding today?
Turning to the biggest companies on the ASX 200 by market cap, here's how they're tracking in morning trade on Thursday on the heels of the Fed's 0.50% interest rate cut.
BHP Group Ltd (ASX: BHP) shares are up 1.45% at $39.76.
Commonwealth Bank of Australia (ASX: CBA) shares are down 0.01% at $143.31.
And the CSL Ltd (ASX: CSL) share price is up 0.12% at $295.75.
