Global Stock Markets at Record Levels, Dollar Under Pressure

On Wall Street, the Dow Jones index strengthened by 1.1 percent last week, reaching 46,758 points, while the S&P 500 rose by 1.1 percent to 6,715 points, and the Nasdaq increased by 1.3 percent to 22,780 points. The new records of these indices are mainly attributed to investor hopes that the U.S. central bank will continue to lower key interest rates.

Indeed, all recent data indicate that the U.S. labor market is weakening, which is the main reason for the Fed’s recent interest rate cut of 0.25 percentage points. Investors hope that the central bank will further reduce rates by another 0.25 percentage points on two occasions by the end of the year, in October and December.

In public statements, some Fed officials support this hope, while others suggest that there should be no rush to lower rates as inflation remains significantly above the target levels of around two percent. Last week, trading was cautious as there were no significant economic reports, given that federal agencies were temporarily closed due to the inability of Republicans and Democrats in Congress to reach an agreement on further funding for these agencies.

Investors are not overly concerned about the temporary closure of federal agencies as this occurs almost every year at this time and has not significantly impacted the economy and financial markets so far. However, analysts warn that this stalemate could persist.

– Given the polarization of the two parties and that both sides are firmly holding their positions, with no signs of concession from either side, I would not be surprised if the federal agencies’ shutdown lasts for a longer period – says Jim Baird, director at Plante Moran Financial Advisors.

European stock prices also rose last week. The London FTSE index strengthened by 2.2 percent to 9,491 points, while the Frankfurt DAX jumped by 2.65 percent to 24,378 points, and the Paris CAC increased by 2.7 percent to 8,081 points. As a result, the STOXX 600 index of leading European stocks reached record levels last week.

The dollar index, which shows the value of the U.S. dollar against six major world currencies, weakened by 0.5 percent last week to 97.71 points. Meanwhile, the dollar slipped by 0.3 percent against the European currency, bringing the euro exchange rate to 1.1740 dollars.

The U.S. currency also weakened against the Japanese yen by 1.4 percent, with the dollar price falling to 147.45 yen. After two weeks of growth, the dollar weakened last week as federal agencies were temporarily closed, given that Republicans and Democrats in Congress failed to reach an agreement on further funding for these agencies.

– The shutdown of federal agencies has deepened concerns about the economy. With no macroeconomic reports, we are blind; we do not know what is happening in the economy. If this shutdown lasts longer, investors will become increasingly concerned about its impact on the economy – explains Jayati Bharadway, currency strategist at TD Securities. The dollar is under pressure also because it is expected that the U.S. central bank will continue to lower key interest rates.