Wednesday, September 19, 2007

World Markets Surge on Fed Rate Cut, Expect More

1. World stock markets react positively today to Fed rate cut yesterday to 4.75%, see chart above of one-day returns in local currency, click to enlarge. Note that the World Index (except for US) rose by 2.75% today, similar to the 2.92% increase yesterday in the S&P500.


ADDENDUM: The world stock market capitalization is about $58 trillion according to
Global Financial Data, and there was a 3.2% dollar increase in world stock markets after the Fed rate cut according to MSCI Barra, meaning that the world stock market capitalization increased almost $2 trillion ($1.86 trillion), the day after the rate cut.

2. According to Fed Funds futures contracts on the CBOT:

a. There is an 80% chance of an additional .25% rate cut at the next FOMC meeting on October 30-31.

b. There is a 100% chance of a .25% rate cut by December (FOMC meets December 11), and a 68% chance of a rate cut of .50% by December.


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