Global equity markets rallied and the dollar slid on Thursday as earnings from Walt Disney, Siemens and AstraZeneca dispelled investor worries about the economy and future pace of interest rate hikes, helping stocks advance to one-year highs in Europe.
Wall Street surged after big gains in S&P 500 and Nasdaq futures underpinned early sentiment in Europe and overnight in Asia. Crude prices eased, with gold firmer as the dollar index fell 0.416%.
The view of a strong economy and signs of slowing inflation dispelled for the moment fears that tighter monetary policy by the Federal Reserve and other central banks to tame price pressures would lead to sharp downturns or a recession.
“There’s this belief we can still have a strong economy, a strong labor market and that inflation will continue to decline,” said Ed Moya, senior market analyst at OANDA in New York.
However, getting inflation down to the Fed’s 2% target could easily take more than a year as energy prices may remain elevated, a fact making some in the market nervous, he said.
“There’s going to be a rude awakening at some point and that you’re going to need to see something break to get inflation all the way back down,” Moya said.
Data again showed a tight U.S. labor market even as the number of Americans filing new claims for unemployment benefits rose more than expected last week, news that helped set aside concerns that interest rates will stay higher for longer.
In the latest move by major central banks, Sweden’s Riksbank on Thursday raised its key interest rate by half a percentage point to 3%, and forecast further tightening in the spring.
MSCI’s U.S.-centric index of stock performance in 47 countries (.MIWD00000PUS) gained 0.34%, increasing year-to-date gains to more than 8% after an 18% decline in 2022. The pan-European STOXX 600 index (.STOXX) rose 0.66% to a one-year high.
On Wall Street, the Dow Jones Industrial Average (.DJI) advanced 0.28%, the S&P 500 (.SPX) gained 0.23% and the Nasdaq Composite (.IXIC) added 0.26%.
German consumer prices, harmonized to compare with other European Union countries, rose by a less-than-expected 9.2% on the year in January, helping reassure markets that prices have peaked.
But the downward trend in inflation is unlikely to alter the European Central Bank’s policy outlook, said Michael Hewson, chief market analyst at CMC Markets.
“It’s not going to change the ECB’s mind for a 50 basis point rate hike in March,” he said.
Whether China comes “roaring back” in the second half of year to drive the global economy is unclear and whether that would trigger another round of inflationary pressures, said Paul Major, manager of Bellevue Healthcare Fund Plc.
“We are still caught in this vacillating macro economic dynamic with risk on, risk off again. People are still calibrating their way through what normal growth looks like,” Major said.
ASIA FIRM
MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) rose 0.62%, rebounding from an earlier decline, while Japan’s Nikkei (.N225) eased 0.08%.
China’s blue chips (.CSI300) rose 1.3%, pulling away from a one-month trough, while Hong Kong’s Hang Seng Index (.HSI) gained 1.6%.
Barclays upgraded their forecast of China’s economic growth to 5.3% this year, from 4.8% previously, with Fitch also revising its forecast up to 5%. Both cited an accelerated recovery in consumer spending.
U.S. Treasury yields fell from one-month highs as investors assessed the rate outlook after last week’s blockbuster U.S. jobs number and ahead of consumer price data next week. CPI for January is expected to rise 0.5%, according economists polled by Reuters.
The yield on 10-year Treasury notes fell 3.1 basis points to 3.605%.
The gap between yields on two- and 10-year Treasury notes , seen as an inflation harbinger when yields at the short end are higher than longer-dated securities, remained inverted at -86.2 bps.
Futures are pricing in the Fed’s target rate to peak at 5.132% in July, about 25 bps higher than last week, and that by December the key rate will have declined to 4.84%, a jump of about 40 bps since a week ago.
Crude prices dipped as U.S. oil inventories hit their highest in months and on the view that the Fed could keep raising interest rates.
U.S. crude was fell 1.64% to$77.18 per barrel and Brent was at $83.62, down 1.73% on the day.
Gold rose to $1,874.88 an ounce on a pullback in the dollar.
