Stocks boosted by rate hike outlook;  Dollar slips: markets are churning

Stocks boosted by rate hike outlook; Dollar slips: markets are churning

(Bloomberg) – European stocks rose and the dollar fell after Federal Reserve meeting minutes showed support for more moderate rate hikes.

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The Stoxx Europe 600 Index continued its recent rally as the real estate sector outperformed, buoyed by prospects of slower rate hikes and analyst upgrades. The shares of Dr. Martens Plc fell the most after the shoemaker’s sales and profits missed expectations. An index of global stocks rose for a third day.

Trading volume is lower due to the Thanksgiving holiday as there is no cash trading in the US stock market. Wall Street futures rose after the S&P 500 closed at a two-month high on Wednesday. Asia’s equity benchmark climbed.

Minutes from the Fed meeting earlier this month indicated that several officials supported the need to slow the pace of rate hikes, although some underscored the case for a higher final rate. This reinforces expectations that the central bank will hike rates by 50 basis points next month, ending a series of jumbo hikes of 75 basis points.

“It was the beginning of a different and more dovish narrative from the Fed,” said Sunaina Sinha Haldea, global head of private capital advisory at Raymond James. “Is it a pivot? No, but are we seeing rate hikes slowing and this path down towards rate cuts? Yes. I think we’ll look back and say that was the highlight.”

Wednesday’s data also showed US business activity contracted and jobless claims rose as the economy slowed.

An indicator of dollar strength fell further on Thursday, leading to a third day of declines. European bonds rallied as traders reduced bets on interest rate hikes by the European Central Bank, with risk-sensitive Italian bonds leading gains. There will be no trading in Treasuries due to the US holiday.

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“Some” ECB officials backed a smaller rate hike in October to tackle record inflation, a report from their last meeting showed. Those who preferred a less aggressive move cited the fact that the hike was accompanied by other monetary tightening measures, according to the report released Thursday.

Oil edged lower as the European Union considered a higher-than-expected price cap for Russian crude and growing signs of a global slowdown.

Meanwhile, Bank of America Corp. said its retail customers are flocking to bonds and out of stocks amid fears of a looming recession. Bond funds attracted inflows for the 39th straight week, strategists led by Michael Hartnett wrote in a note. Strategists favor holding bonds in the first half of 2023, with equities becoming more attractive in the last six months of next year.

“We remain bearish on risk assets in the first half, turning bullish in the second half as the narrative shifts from inflation and interest rate shocks in 2022 to recessions and credit shocks in the first half of 2023,” the strategists wrote.

Gold rose for a third day in Fed minutes. The precious metal has been hurt by the US Federal Reserve’s aggressive monetary tightening policy to curb inflation, which has pushed bond yields and the dollar higher, in turn sending bullion down about 16% from its March peak.

In Asian trading, stocks from mainland China underperformed as investors weighed the impact of record Covid-19 cases against signs of an easing in monetary conditions. Official comments aired on Wednesday suggested the People’s Bank of China would allow banks to reduce capital reserves to spur growth.

Important events this week:

  • The ECB will publish a report on its October monetary policy meeting on Thursday

  • US stock and bond markets are closed for the Thanksgiving holiday, Thursday

  • US stock and bond markets close early on Friday

Some of the key movements in the markets:

Stocks

  • Futures on the S&P 500 rose 0.3% for a third straight day, the longest winning streak since November 8 at 2:33 p.m. New York time

  • Futures on the Dow Jones Industrial Average rose 0.2%, climbing for the third straight day, the longest winning streak since Nov. 8

  • The MSCI World Index rose 0.4% for the third straight day, its longest winning streak since Nov. 8

currencies

  • The Bloomberg Dollar Spot Index fell 0.2% for the third straight day, its longest losing streak since Nov. 8

  • The euro was little changed at $1.0405

  • The British pound rose 0.5% to its highest level since August 12

  • The Japanese yen rose 0.8% to its highest level since August 26

cryptocurrencies

  • Bitcoin rose 0.6% to $16,566.67

  • Ether is up 2.9% to $1,203.05

Bind

raw materials

  • West Texas Intermediate crude was little changed

  • Gold futures are up 0.5%, more than any closing gain since Nov. 11

This story was created with the support of Bloomberg Automation.

–With the support of Allegra Catelli.

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