Shares and bonds rally as Fed feeds global rate peak hopes
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[November 02, 2023] By
Marc Jones
LONDON (Reuters) - European shares and bonds extended a global rally on
Thursday as a non-committal Federal Reserve chief had traders doubling
down on bets that U.S. interest rates - the main driver of world
borrowing costs - have finally peaked.
With expectations that the Bank of England might send a similar signal
in a few hours, Europe's STOXX 600 and London's FTSE were both up over
1% early on, with the former on course for its first four-day run of
gains since July.
Shorter-term bond market yields were at two-month lows [GVD/EUR] and the
dollar was back-pedalling in the foreign exchange markets, much to the
relief of the Japanese yen and the dozens of emerging market currencies
that have been suffering this year. [/FRX]
Fed Chair Jerome Powell's comments that its aggressive 20-month run of
rate increases was likely to slow the economy after what he had
described as the "outsized" jump in Q3 U.S. GDP, was the main takeaway
for many analysts, although he had been careful to keep the door open to
another hike if needed.
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"A lot of things went right for the rates market yesterday," Jefferies
chief European economist Mohit Kumar said, adding that today's focus
would be on the Bank of England and U.S. unemployment claims and factory
orders data.
Sterling crept 0.2% higher to $1.2173 but slipped to 87.14 per euro as
dealers waited for the BOE's rate decision due at 1200, which will also
come with new economic forecasts.
Markets price an almost 90% chance the bank will keep UK rates at their
current 15-year high of 5.25%, but have not fully priced a rate cut
until September 2024 -- well after cuts are expected to have begun in
other parts of Europe.
"Pricing is reflecting the view that BoE rates will have to remain on
'Table Mountain' for some months given the UK's inflation risks," said
RaboBank FX strategist Jane Foley.
Jefferies' Kumar added: "we remain of the view that November could see a
positive performance from rates, credit and equities".
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A man works at the Tokyo Stock Exchange after market opens in Tokyo,
Japan October 2, 2020. REUTERS/Kim Kyung-Hoon/File Photo
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APPLE EYED
Overnight, MSCI's broadest index of Asia-Pacific shares outside
Japan had surged 1.6%,the biggest daily jump since late July.
Tokyo's Nikkei had also gained 1.1% while S&P 500 futures and Nasdaq
futures were pointing to another 0.5% rise on Wall Street later.
Investors are now awaiting results from Apple, a bellwether for
consumer demand and the tech sector. The Cupertino California-based
company is expected to report a 1% decrease in quarterly revenue.
The next big focal point after that will be U.S. non-farm payrolls
data on Friday, which analysts expect to show the economy added
180,000 jobs in October, slowing from a 336,000 increase the
previous month.
It will come after mixed data showed strong job openings and slower
than expected growth in private payrolls.
Fed funds futures markets pared back the chance of a December rate
hike to about 20% and a January move to 25%. Markets have priced in
a 70% chance that the tightening is now over and U.S. rate cuts
could begin as soon as June.
The upbeat mood was also lifting commodity markets. Brent crude
futures climbed 1.6% to $85.95 a barrel while U.S. West Texas
Intermediate futures were at $81.87 a barrel, up 1.8%.
The price of gold, which has surged almost 10% since Hamas' attack
on Israel last month ignited Middle East tensions, was 0.2% higher
at $1,985.99 per ounce.
(Additional Reporting by Stella Qiu in Sydney and Samuel Indyk in
London; Editing by Emelia Sithole-Matarise)
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