Global equities surged and the dollar retreated, as investors wagered the Federal Reserve has reached the end of its 16-month long policy-tightening cycle.
(Bloomberg) — Global equities surged and the dollar retreated, as investors wagered the Federal Reserve has reached the end of its 16-month long policy-tightening cycle.
A raft of earnings beats from high-profile companies added to the bullish momentum, propelling the Stoxx Europe 600 index 1% higher to a two-month high, while US futures pointed to a strong Wall Street session. Contracts on the tech-heavy, policy-sensitive Nasdaq 100 were up 1.3%, led by an 8% premarket surge in Facebook parent Meta Platforms Inc.
The moves come after the Fed raised the federal funds rate to a 22-year high and while it signaled further hikes would be data dependent, many investors reckon it’s done hiking interest rates. They have trimmed bets on more increases this year, as Fed Chair Jerome Powell pointed to signs that higher borrowing costs are working to curb price pressures.
Meanwhile, a predicted 25-basis-point rate rise later Thursday from the European Central Bank could be one of its last moves this cycle.
“There is belief that the Fed is probably done,” said Timothy Graf, head of EMEA macro strategy at State Street Bank & Trust Co. “Markets are also seeing a US economy that’s held up far better than the consensus outlook. They are pricing that we have achieved a landing that everyone thought would be impossible to achieve.”
What’s more, gloomy forecasts for an earnings recession have failed to materialise, according to Graf, with equity moves showing “people were under-invested in a lot of the big themes that generated returns this year.”
More than half of all companies have beat analyst estimates so far, and today stands to be the busiest of the second-quarter calendar. Among individual European movers, BNP Paribas SA, Nestle SA and Carrefour SA all rallied after topping estimates. On the downside, Shell Plc retreated despite pledging more buybacks as its profits fell from last year’s highs. Barclays Plc slumped on back of a 41% decline in quarterly trading revenue.
Meta stood out in US premarket trading, after issuing forecast-beating results and revenue forecasts. Chipmakers also advanced, led by Micron Technology Inc., which highlighted its development of high-bandwidth memory products.
The dollar meanwhile pulled back for its third straight day in the red, while US Treasury yields slipped. The euro strengthened 0.5%, while the yen rose into a fourth day as traders positioned for the risk of hawkish guidance at Friday’s Bank of Japan’s meeting.
Many reckon that as support from a hawkish Fed fades, the dollar could be set to pivot weaker, in a potentially bullish signal for other global assets.
“Relative yield differentials are moving against the dollar,” Manpreet Gill, chief investment officer for Africa, Middle East and Europe at Standard Chartered Wealth Management, told Bloomberg Television. “When you look at relative differentials between US and Europe, we don’t see the bearish argument going away.”
As signs have mounted of the US economy heading for a soft landing, stocks have roared higher in recent weeks. On Wednesday, the Dow Jones Industrial Average climbed for a 13th straight session, marking its longest winning streak since 1987. Oil followed the wider advance in markets, adding almost 1%.
US second-quarter gross domestic product data later in the day is forecast to show a 1.8% expansion, slowing only marginally from the previous quarter. Core PCE price index, personal consumption and jobless claims figures are also due.
Key events this week:
- ECB rate decision, Thursday
- US GDP, durable goods orders, initial jobless claims, wholesale inventories, Thursday
- Japan Tokyo CPI, Friday
- BOJ rate decision, Friday
- Eurozone economic confidence, consumer confidence, Friday
- US consumer income, employment cost index, University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 rose 1% as of 10:54 a.m. London time
- S&P 500 futures rose 0.6%
- Nasdaq 100 futures rose 1.3%
- Futures on the Dow Jones Industrial Average rose 0.2%
- The MSCI Asia Pacific Index rose 0.7%
- The MSCI Emerging Markets Index rose 0.5%
Currencies
- The Bloomberg Dollar Spot Index fell 0.2%
- The euro rose 0.4% to $1.1132
- The Japanese yen was little changed at 140.11 per dollar
- The offshore yuan was little changed at 7.1493 per dollar
- The British pound rose 0.2% to $1.2969
Cryptocurrencies
- Bitcoin fell 0.1% to $29,553.66
- Ether rose 0.2% to $1,885.08
Bonds
- The yield on 10-year Treasuries was little changed at 3.87%
- Germany’s 10-year yield was little changed at 2.48%
- Britain’s 10-year yield advanced two basis points to 4.30%
Commodities
- Brent crude rose 0.9% to $83.68 a barrel
- Spot gold rose 0.1% to $1,974.92 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Marcus Wong, Tassia Sipahutar, Naomi Tajitsu and Denitsa Tsekova.
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