Markets consider peak rates, boosting global equities

Global equities surged Thursday and the dollar retreated, as investors wagered the Federal Reserve has reached the end of its 16-month long policy-tightening cycle.

The Stoxx Europe 600 index rose 1%, with almost all sectors gaining, and US futures pointed to a strong session on Wall Street. Contracts on the tech-heavy Nasdaq 100 were up 1.1%. 

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.

Pooja Kumra, senior European rates strategist at Toronto Dominion Bank, said Fed hawkishness had been “dialed down a notch.” While upcoming jobs and inflation figures would be crucial for the September meeting, “the current disinflation trend supports a pause rather than a hike,” she added. 

The conviction over peaking US and European rates coincides with a robust earnings season. So far, more than half of all companies have beat analyst estimates and today stands to be the busiest of the second-quarter calendar. 

Among individual 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.

In New York premarket trading, Facebook parent Meta Platforms Inc. advanced 8% after issuing forecast-beating results and revenue forecasts. Chipmakers also gained, 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. Many reckon the greenback is at a pivotal moment as support from a hawkish Fed fades.

“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.” 

Signs have also grown that the US economy is headed for a soft landing, lifting the Dow Jones Industrial Average for a 13th straight session Wednesday for its longest winning streak since 1987.  

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.

Earlier in Asia, shares rallied, with Hong Kong’s Hang Seng Index up 1.5% and Tokyo’s benchmark rose 0.7%. Chinese electric-vehicle maker XPeng Inc. soared 30% on news of a $700 million investment from Volkswagen AG.

Investors now await Friday’s Bank of Japan policy decision Friday, with the yen strengthening into a fourth day as traders positioned for possible guidance on when the central bank could shift away from its ultra-easy policies.

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 9:49 a.m. London time
• S&P 500 futures rose 0.6%
• Nasdaq 100 futures rose 1%
• Futures on the Dow Jones Industrial Average rose 0.3%
• The MSCI Asia Pacific Index rose 0.8%
• The MSCI Emerging Markets Index rose 0.6%

CURRENCIES

• The Bloomberg Dollar Spot Index fell 0.3%
• The euro rose 0.5% to $1.1137
• The Japanese yen rose 0.2% to 139.93 per dollar
• The offshore yuan rose 0.1% to 7.1430 per dollar
• The British pound rose 0.4% to $1.2994

CRYPTOCURRENCIES

• Bitcoin fell 0.4% to $29,470.09
• Ether fell 0.2% to $1,877.65

BONDS

• The yield on 10-year Treasuries was little changed at 3.87%
• Germany’s 10-year yield was little changed at 2.49%
• Britain’s 10-year yield advanced three basis points to 4.31%

COMMODITIES

• Brent crude rose 0.6% to $83.48 a barrel
• Spot gold rose 0.2% to $1,976.57 an ounce

This story was produced with the assistance of Bloomberg Automation.

--With assistance from Marcus Wong, Tassia Sipahutar and Naomi Tajitsu.