World stocks hit new 2023 highs after rally on inflation data
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[July 14, 2023] By
Elizabeth Howcroft
LONDON (Reuters) - World stocks extended their gains on Friday, on track
for their biggest weekly rise this year, while the dollar held near
15-month lows as investors bet that the U.S. Federal Reserve was nearing
the end of its rate-hiking cycle.
Data on Wednesday showed U.S. consumer prices growing at their slowest
pace in more than two years, then on Thursday data showed the smallest
increase in U.S. producer inflation in nearly three years.
As investors bet on a milder inflation outlook, the MSCI World Equity
index rose to its highest so far this year. It has seen gains every day
this year and on Friday was up 0.2% on the day, on track for its best
week since November 2022.
European stock indexes were mostly higher, with MSCI's Europe index up
0.2% and London's FTSE 100 up 0.1%. But the STOXX 600 was flat on the
day, but still on track for its best week since March, and Germany's DAX
was down 0.3%, also pulling back on recent gains.
Money market traders still expect the Fed to raise rates by 25 basis
points on July 26, but they have reduced the chances of another this
year.
Norman Villamin, chief group strategist at UBP, said he expected another
Fed rate hike in July, but that the September meeting was more
uncertain.
"We're probably closer to the end of the cycle," he said, although he
added that above-target inflation is still expected to persist in the
longer term.
"Getting the 3% (inflation reading) is one thing, getting back to 2% is
going to be a much harder task," Villamin said. "That puts a floor on
how low bond yields can go again."
Another factor cited by UBP's Villamin for the equity market rally has
been a swell of liquidity from the Federal Reserve system.
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A man watches stock quotations on an
electronic board outside a brokerage, in Tokyo, Japan, March 20,
2023. REUTERS/Androniki Christodoulou
The Fed's reserve repo account, which is where eligible firms can
park cash at the central bank in exchange for risk-free return,
stands at $1.8 billion, down from $2.3 billion at the end of April,
according to Refinitiv data, indicating $500 billion of liquidity
has come back into markets in that time.
The U.S. dollar index was at 99.786, holding near the 15-month low
of 99.574 hit earlier in the session and set for its biggest weekly
decline since November. The euro was steady at $1.1231, having
earlier touched its highest in more than 16 months.
Meanwhile the Swedish crown was set for its biggest weekly gain
against both the dollar and euro in 14 years.
Euro zone government bond yields were mostly lower, with the
benchmark German 10-year yield at 2.454%.
Oil prices were a touch higher, helped by bullish sentiment over
U.S. demand. Brent and WTI futures were both up by 0.1%.
Gold was on track for its best week since April, also helped by
dollar weakness and boosted by expectations for the end of U.S.
interest rate hikes.
Investor attention now turns to U.S. bank earnings, which begin with
JPMorgan Chase, Citigroup, Wells Fargo and BlackRock reporting
second-quarter results later on Friday.
(Reporting by Elizabeth Howcroft, Editing by William Maclean)
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