Stocks steady, dollar gains as investors ponder Fed rate cuts

[November 22, 2023]  By Amanda Cooper

LONDON (Reuters) -Global shares hovered around three-month highs on Wednesday and the dollar found support as investors tempered some of their earlier enthusiasm about the prospect of the start of a series of U.S. interest rate cuts.

The MSCI All-World index fell 0.1%, down for a second day following the decline on Wall Street, after minutes from the Federal Reserve's most recent meeting offered little new insight into policymakers' thinking on rates.

Overnight, the S&P 500 snapped a five-session winning streak and fell 0.2%. Chipmaker Nvidia reported revenue well above Wall Street expectations after the market close, but shares fell 1.7% due to the company's downbeat China sales outlook.

Nasdaq futures fell 0.3% in European trading, while those on the S&P 500 were down just 0.1%. Volumes are likely to be light through the rest of the week because of Thursday's Thanksgiving holiday in the United States.

"We're just at that moment where the market is consolidating and particularly ahead of the Thanksgiving holiday, we wouldn't expect to see any big moves over the coming days," City Index market strategist Fiona Cincotta said.

The Fed minutes showed policymakers pledged to "proceed carefully" from here, which traders did not interpret as new information, and also contained no confirmation that policymakers had ruled out more rate hikes.

"They couldn't whisk that off the table completely. That would have created a rather larger market move," Cincotta said.

"That's where we are in the market – broadly speaking, it's supportive of stocks and broadly speaking, unsupportive for the U.S. dollar," she said.

The dollar index was up 0.25% on the day, rising for a second consecutive session, but is still on track for its worst monthly performance in a year, with a drop of 2.7%.

The MSCI global shares index, meanwhile, is up 8.2% in November, marking its biggest monthly rally since late 2020, and at its highest since mid-August.

Ten-year Treasury yields were marginally lower at 4.41%. They have fallen about 50 basis points since the Fed held rates steady early in the month.

Interest rate futures markets see almost no chance the Fed hikes again and price about 90 basis points of rate cuts through 2024, with a 30% chance they begin as soon as March.

"Since the (Fed) believes that a soft landing is in sight, it would be foolish to risk it by hiking further than necessary," said Rabobank's senior U.S. strategist Philip Marey.

A worker shelters from the rain under a Union Flag umbrella as he passes the London Stock Exchange in London, Britain, October 1, 2008. REUTERS/Toby Melville//File Photo

"If we were to see stronger economic and inflation data before the December meeting, longer-term rates are likely to rebound and substitute for a rate hike. Therefore we do not expect further hikes."

PROSPECTS FOR THE YEN

In currencies, the dollar, which has been sliding since last week's benign U.S. inflation report, lifted from multi-month lows against a number of other currencies.

It was a touch firmer against the euro at $1.0897 and up 0.5% against the yen at 149.13 yen.

"We expect bond yield gaps to remain a tailwind for the yen and renminbi as inflation in the U.S. continues to moderate and investors discount more rate cuts from the Fed," said Jonathan Petersen, senior economist at Capital Economics.

China's yuan, which has gained 2% in the past week, was down 0.2% at 7.1575 against the dollar.

China's major state-owned banks have been buying the yuan to hasten its recovery lately, two sources told Reuters on Tuesday.

British Finance Minister Jeremy Hunt will present his autumn budget later in the day that is expected to contain plans for tax cuts for businesses. Investors will be watching closely to see how any give-aways affect the UK's borrowing plans, which could impact sterling and government bond yields.

The pound was last down 0.1% against the dollar at $1.2525 and down 0.1% against the euro at 87.12 pence.

In commodities, Brent crude futures fell 0.4% to $82.17 a barrel, while copper futures fell 0.5% to $8,404 a tonne, having touched a two-month high on Tuesday.

Bitcoin rose 2.2% to $36,573, recovering from an overnight low of $35,651 after Binance chief Changpeng Zhao stepped down and pleaded guilty to breaking U.S. anti-money laundering laws as part of a $4.3 billion settlement resolving a years-long probe into the crypto exchange.

Binance's own token was up 5.3% on the day at $237.30, having lost nearly 10% the previous day in its largest one-day slide in year.

(Additional reporting by Tom Westbrook in Singapore; Editing by Sam Holmes, Shri Navaratnam and David Evans)

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