World stocks rise on rate cut bets, yen flounders at 38-year lows
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[July 03, 2024] By
Alun John and Dhara Ranasinghe
LONDON (Reuters) -Shares around the world rose on Wednesday as comments
from Federal Reserve Chair Jerome Powell reinforced expectations that
U.S. rate cuts were not far off, briefly halting recent rises in
Treasury yields and the dollar.
MSCI's world share index gained 0.3% to a new record high, with Europe's
broad STOXX 600 index 0.9% higher in early trading. [.EU]
Earlier in the day Asian shares rose, with Japan's Nikkei closing up
1.26% from the previous day, chasing its record high touched in March,
after Wall Street's main indexes closed higher on Tuesday. [.N]
Shaping the broader economic and market picture were Powell's Tuesday
remarks that the U.S. is back on a "disinflationary path", although he
cautioned that policymakers need more data before they can consider
cutting interest rates.
Powell's comments sent U.S Treasury yields lower, with the yield on the
10-year note steady at 4.43% on Wednesday, moving further from Monday's
one-month high of 4.493%. [US/]
"There was a bit of change of tone from Powell," said Michael Metcalfe,
State Street Global Markets' head of macro strategy.
"Most recent inflation prints have been encouraging. The idea that
inflation is not as sticky as anticipated and you could get some policy
support is encouraging."
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Traders are currently pricing in a 69% chance of the Fed cutting rates
in September and as many as two rate cuts this year.
That is a far cry from the more than 150 basis points of easing expected
at the start of the year, but a step up from a few months ago when
investors saw no Fed cuts at all this year as plausible, if not their
base case.
Investors were also weighing data showing a tight U.S. labour market and
will switch their focus to Friday's nonfarm payrolls data, with U.S.
markets shut on Thursday and closing early on Wednesday.
There is less on the calendar in Europe on Wednesday, but the focus is
on Britain's national election on Thursday and the second round of
voting in France's parliamentary elections on Sunday.
Markets have been largely unconcerned by Britain's election - polls
point to a win by the opposition Labour party - though French politics
have caused sharp swings in recent weeks.
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A man looks at an electric monitor displaying a stock quotation
board outside a bank in Tokyo, Japan, June 5, 2023. REUTERS/Issei
Kato/File Photo
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Data from China meanwhile showed the country's services activity
expanded at the slowest pace in eight months and confidence hit a
four-year low in June, dragged by slower growth in new orders.
Onshore Chinese blue chips were an outlier among rising indexes in
Europe and Asia, slipping 0.24%, and China's yuan eased to a
seven-month low against the dollar.[.SS] [CNY/]
YEN VIGIL
The pause in Treasury yields' climb halted gains in the dollar, at
least in the short term. The euro was last up 0.08% at $1.0754, and
the pound up 0.1% at $1.2696. [FRX/]
Even the yen was slightly calmer, though the dollar still climbed to
a new 38-year high of 161.90 yen. The yen has dropped more than 12%
against the dollar this year, hurt by the wide gap between interest
rates in the U.S. and Japan.
Traders have been on the lookout for signs of Japanese authorities
intervening in the currency market to prop up the frail yen, but
some analysts suggested this threshold might be further away than
current levels.
"I can't see the yen turning around until Fed easing is in view,"
said Kit Juckes, FX strategist at Societe Generale.
In commodities, oil prices rose as U.S. industry data boosted hopes
of solid fuel demand during the summer driving season in the top
oil-consuming nation. [O/R]
Brent crude oil futures were 6 cents higher at $86.30 a barrel,
while U.S. West Texas Intermediate crude futures ticked up 2 cents
to $82.83 per barrel.
Spot gold was up 0.7% at $2,345 an ounce.
(Reporting by and Alun John and Dhara Ranasinghe, additional
reporting by Nell Mackenzie in London; Ankur Banerjee and Sameer
Manekar in Singapore; Editing by Muralikumar Anantharaman, Sonali
Paul, Kim Coghill and Jan Harvey)
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