World stocks cling to upbeat mood, dollar stalls
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[April 11, 2023] By
Dhara Ranasinghe
LONDON (Reuters) -World stocks rallied on Tuesday as traders held onto
hope that interest rates will soon peak and fall later this year, even
if the latest U.S. jobs data supported the case for a May hike by the
Federal Reserve.
Trading was largely sluggish as many markets reopened after a long
holiday weekend.
European stocks added 0.5% , U.S. equity futures pointed to a positive
Wall Street open and Japan's blue-chip Nikkei rallied over 1%.
Bolstering the case for global inflation easing further this year, data
showed China's consumer inflation hit an 18-month low and factory-gate
price declines sped up in March as demand remained weak.
Investor morale in the euro zone meanwhile improved in April after a
surprise dip in March, a survey showed.
South Korea's central bank held rates steady for a second consecutive
meeting on Tuesday, while the Bank of Canada is expected to leave rates
unchanged when it meets on Wednesday.
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Friday's non-farm payrolls suggested labour markets remain resilient,
boosting expectations for a 25-basis-point (bps) U.S. rate increase in
May. Markets price in a roughly 70% chance of a May hike, having last
week priced such a move as a coin toss.
"It seems that we are currently in an environment that the world is
looking at a soft landing and the need not to over-tighten policy," said
Nordea chief analyst Jan von Gerich.
"The payrolls number was strong enough to suggest that the economy could
avoid a deeper recession but not too strong to suggest the Fed needs to
tighten by much more."
Traders still price in rate cuts by year-end as the economic growth
outlook weakens, exacerbated by banking turmoil.
An analysis in the International Monetary Fund's latest World Economic
Outlook suggested that current high rates "are likely to be temporary"
and predicted that, once inflation is brought under control, rates in
advanced economies would eventually return to pre-pandemic levels.
The International Monetary Fund's latest global economic outlook is out
later on Tuesday.
U.S. March inflation data on Wednesday could provide the next steer for
markets on the rate outlook.
"I don't think the Fed should be hiking rates again but the reality is
that they probably will do one more 25bp hike," said Guy Miller, chief
market strategist at Zurich Insurance Group.
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"The reason for that is that core inflation is still running at high
levels and the services sector is very robust."
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Overview of Amsterdam's stock exchange
interior as Prosus begins trading on the Euronext stock exchange in
Amsterdam, Netherlands, September 11, 2019. REUTERS/Piroschka van de
Wouw/File Photo
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STABILITY
Investor sentiment has also been boosted by signs that turmoil in
the banking sector is easing.
Deposits at U.S. commercial banks rose near the end of March for the
first time in about a month, showing signs of stabilizing after the
two largest bank failures since the financial crisis rocked the
banking system and rattled depositors, Federal Reserve data on
Friday showed.
In Europe, UBS shares rose just over 1% after JP Morgan raised its
target price, while the Swiss parliament held an extraordinary
session to discuss last month's UBS-Credit Suisse deal.
"My feeling is that it's not over - we're just beginning to feel the
pain of these much higher interest rates. And banks may be okay for
now, but the credit risk is still to impact both them and the
economy," said Zurich's Miller, referring to recent pain in markets.
The dollar was broadly softer, giving up some of its post-payrolls
gains. It eased 0.4% to 133 yen, after jumping 1.1% on Monday. The
euro was up 0.5% at $1.091.
Bitcoin touched a fresh 10-month high at $30,438 before pulling back
to $30,148, after breaking free of recent ranges on Monday. The
digital token had been stuck between about $26,500 and $29,400 for
the previous three weeks.
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In Asia, Japanese government bond yields mostly fell, after new Bank
of Japan Governor Kazuo Ueda vowed on Monday to maintain the bank's
ultra-loose monetary policy.
The 10-year JGB yield fell to as low as 0.445%, its lowest since
April 4, after hovering at 0.465% in the previous session.
Most 10-year European government bond yields rose as markets played
catch-up with the rise in U.S. yields following Friday's jobs data.
U.S. Treasury yields edged down on Tuesday, however, with rate
sensitive two-year yields 4 bps lower at 3.96%.
Elsewhere, oil prices gave up early gains with Brent crude futures
last down 0.17% at $84.02 a barrel. U.S. WTI futures dipped 0.1% to
$79.63.
(Reporting by Dhara Ranasinghe; additional reporting by Selena Li in
Hong Kong and Junko Fujita in Tokyo; editing by Simon Cameron-Moore
and Mark Heinrich)
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