The risk-on mood in markets stretched into another day as stocks climbed and the dollar weakened to a 15-month low.
(Bloomberg) — The risk-on mood in markets stretched into another day as stocks climbed and the dollar weakened to a 15-month low.
European shares extended Wednesday’s rally, which saw the Stoxx 600 Index surge 1.5%. Swatch Group AG, the maker of Omega and Longines watches, jumped more than 6% as China’s reopening fueled a rise in profits. Watches of Switzerland Group Plc, the biggest retailer of Rolex watches in the UK, soared 10%. US equity futures rose after solid gains on Wall Street.
Investors are piling back into equities as concerns over higher interest rates and a potential recession ease. The European benchmark is in the midst of its longest rising streak since mid-April and has almost erased its second-half losses. Data Wednesday showed the US inflation rate slid to a two-year low, while a report on US producer prices due later today is expected to show a decline from a year ago.
“The question now is whether the market continues to trade off the easing inflation narrative,” ING Bank NV strategists led by Antoine Bouvet wrote in a note. “There is an excuse to do so as today’s PPI report is also expected to be friendly.”
The MSCI Asia Pacific Index headed for the highest close in more than three weeks, with stocks in Hong Kong recording some of the biggest gains. Chinese Premier Li Qiang met with senior executives from firms including Alibaba Group Holding Ltd. and ByteDance Ltd., a sign that the government is ending its crackdown on the technology industry.
Some top money managers said the dollar is poised for further losses as US exceptionalism wanes. Hedge funds turned net sellers of the dollar for the first time since March, according to data from the Commodity Futures Trading Commission aggregated by Bloomberg.
“The recent USD underperformance reflects a qualitative shift in market comfort with being short USD as the terminal Fed policy rate looks increasingly capped,” Steven Englander, head of global G-10 FX research and North America strategy for Standard Chartered Bank, wrote in a note.
The British pound extended its rally to a sixth day, staying above the $1.30 level that it hit Thursday for the first time since April 2022, after data showed the UK economy shrank less than expected in May.
Bond yields were broadly lower as investors unwound bets that the Fed would raise rates again following an expected hike this month. The yield on two-year Treasuries, which is more sensitive to imminent policy moves, dropped around six basis points to 4.68% after sliding 13 basis points Wednesday on the inflation data. Germany’s 10-year yield dropped eight basis points to 2.49%.
The US consumer price index slid to 3% in June year-on-year, down from 4% in May. The core measure — which economists view as the better indicator of underlying inflation — dropped to 4.8%, the lowest since 2021. While traders predict the Fed will still go ahead with one more rate hike this month, the likelihood of further increases appears to be receding.
Brandywine Global Investment Management expects the Fed to tighten by 25 basis points this month and then pause. “We’ve moved beyond that sort of crisis mentality around inflation,” portfolio manager Jack McIntyre told Bloomberg Television. “The rhetoric coming from the Fed post-FOMC should be a lot less hawkish.”
Focus this week is also on the second-quarter earnings season, which kicks off on Friday with reports from the big US banks. Some strategists have warned that the bar for the rally to continue is high even if S&P 500 profits are better than feared.
Elswhere in markets, crude oil was steady even after the International Energy Agency said cut its forecast for demand growth. Iron ore rose as hopes increased that Beijing will deliver more economic aid for the beleaguered property sector and as investors shrugged off disappointing Chinese trade data.
Key events this week:
- US initial jobless claims, PPI, Thursday
- US University of Michigan consumer sentiment, Friday
- US banks kick off earnings, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures rose 0.3% as of 6:13 a.m. New York time
- Nasdaq 100 futures rose 0.6%
- Futures on the Dow Jones Industrial Average rose 0.1%
- The Stoxx Europe 600 rose 0.5%
- The MSCI World index rose 0.4%
Currencies
- The Bloomberg Dollar Spot Index fell 0.2%
- The euro rose 0.3% to $1.1161
- The British pound rose 0.5% to $1.3056
- The Japanese yen was little changed at 138.61 per dollar
Cryptocurrencies
- Bitcoin rose 0.7% to $30,558.88
- Ether rose 0.5% to $1,881.8
Bonds
- The yield on 10-year Treasuries declined four basis points to 3.82%
- Germany’s 10-year yield declined eight basis points to 2.49%
- Britain’s 10-year yield declined six basis points to 4.45%
Commodities
- West Texas Intermediate crude was little changed
- Gold futures rose 0.2% to $1,964.70 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Ruth Carson, Tassia Sipahutar and Cecile Gutscher.
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