A gauge of global stock markets rose Monday on optimism that major central banks will cut interest rates this year, while the yen weakened against the dollar after a sharp rise last week due to the Japan’s alleged monetary intervention.
Stocks on both sides of the Atlantic rose, with all three major Wall Street indexes in the green, as a weaker-than-expected U.S. labor market report last week reduced bets that the Federal Reserve could increase its rates this year.
The dollar index, which measures the U.S. currency against six major currencies, fell for the fourth straight session after data showed the smallest increase in jobs since October, easing fears that the Federal Reserve is keeping rates higher for longer.
Fed Chairman Jerome Powell “told the market that a hike was unlikely. That’s what he said, ‘unlikely,’ and so they took that to mean he wanted to cut rates ” said Brad Conger, chief investment officer at Hirtle Callaghan & Co. in Conshohocken, Pennsylvania.
But the outlook for rates remains uncertain as the market hopes rates are restrictive enough to slow the economy and the pace of inflation, Mr. Conger said.
“It’s a tenuous connection, IE, meaning you have to take a leap of faith to believe that inflation is going away because activity is slowing,” he said. “That’s the orthodox view.
On Wall Street, the Dow Jones Industrial Average rose 0.17%, the S&P 500 rose 0.55% and the Nasdaq Composite rose 0.60%.
In Europe, the pan-regional STOXX 600 index was also positive, up 0.52%, thanks to signs that the European Central Bank is more confident about cutting rates, as zone inflation Euro continues to decline, three ECB policymakers said.
Philip Lane, Gediminas Simkus and Boris Vujcic separately said the inflation and growth data reinforced their belief that euro zone inflation, which was 2.4% in April, will slow to central bank’s 2% target by the middle of next year.
The MSCI world stock index rose 0.54%.
The dollar was broadly stable, leaving the euro up 0.15% at $1.0774, while sterling strengthened 0.22% to $1.2571.
In Europe, Goldman Sachs raised its 2024 earnings per share growth forecast for STOXX 600 companies to 6%, from 3% previously, the bank said in a note on Friday.
According to Goldman, a 10% annual rise in Brent prices adds about 2.5 percentage points to annual EPS growth, and a 10% weaker euro/dollar exchange rate adds about the same.
Treasury yields rose as investors weighed last week’s muted job creation, reinforcing views that the U.S. economy was not overheating enough to derail a taper. rate.
The yield on benchmark U.S. 10-year bonds rose 1.2 basis points to 4.512%, from 4.5% last Friday.
Traders now price the Fed’s rate cuts at 48 basis points by the end of the year, with the first cut likely in September, according to LSEG’s rate probabilities tool. In recent weeks, traders had forecast only one decline due to signs of persistent inflation.
Due to public holidays in the United Kingdom and Japan, markets in mainland China and Europe got off to a flying start, also benefiting from renewed optimism in the United States.
Oil prices also focused on prospects for higher prices in Saudi Arabia and growing tensions in the Middle East. US crude rose 0.56% to $78.55 per barrel and Brent crude rose to $83.39 per barrel, up 0.52% on the day.
The Israeli military on Monday called on Palestinian civilians to evacuate Rafah in a “limited scope” operation, but did not immediately confirm media reports that the operation was part of preparations for a land assault.
MSCI’s broadest index of Asia-Pacific stocks outside Japan hit its highest level since February 2023 and closed 0.66% higher, while China’s flagship index ended higher by 1.5%.
Hong Kong’s Hang Seng Index rose 4.7% last week and recorded its longest streak of daily gains since 2018 on Friday, closing Monday up 0.55%.
MONITORING THE INTERVENTION
Elsewhere, traders remained on alert for further volatility in the yen, following episodes last week where Japanese authorities were suspected of intervening to halt a sharp decline in the currency.
Tokyo is believed to have spent more than 9 trillion yen ($59 billion) to prop up its currency last week, Bank of Japan data suggests, sending the yen from a 34-year low from 160.245 per dollar to a roughly one-month high of 151.86 within a week.
The yen lost some of those gains on Monday and was down 0.63% against the greenback at 153.95 per dollar.
Spot gold rose 0.9 percent to $2,322.19 an ounce.
Bitcoin gained 0.30% to $63,119.00.
