Global shares rose and Treasury yields fell yesterday as investors assessed the US Federal Reserve’s interest rate increase and its efforts to contain inflation.
Markets were also weighing the Bank of England’s (BoE) decision to leave interest rates unchanged while signaling further policy tightening could be needed as higher oil prices add to inflation pressures. The Bank of Japan is widely expected to lift interest rates today.
Stocks fell on Wednesday as investors digested the Fed’s hawkish stance and Chair Kevin Warsh’s Press conference, but much of that move was being unwound yesterday, supporting equities, said James St Aubin, chief investment officer at Ocean Park Asset Management.
“The big kicker from the equity market perspective is that the hawkish tone was a bit more than what they were expecting and now we are settling in and investors are starting to say, ‘well, maybe that was more talk than anything’. If you think about the backdrop from a fundamental perspective, it’s still very strong and that’s providing the overriding sense of optimism right now,” St Aubin said.
On Wall Street, all three major indexes were higher and on track to break a three-session losing streak.
Technology, consumer discretionary and materials stocks led gains, while consumer staples, financials and energy lagged. The Dow Jones Industrial Average rose 0.52 per cent, the S&P 500 rose 0.96pc, and the Nasdaq Composite rose 1.48pc.
European shares gained nearly 1pc. MSCI’s broadest index of Asia-Pacific shares outside Japan edged higher by 0.07pc overnight.
MSCI’s gauge of stocks across the globe rose 0.73pc and was poised to snap three straight sessions of losses.
The Fed’s unanimous quarter-point rate increase on Wednesday was accompanied by its closely watched ‘dot plot’, which signaled one additional rate hike this year.
The dollar took a breather against major peers after hitting a seven-week high in currency markets as US Treasury yields retreated following Wednesday’s rise.
The euro was up 0.17pc against the dollar at $1.1483 while the Japanese yen strengthened 0.35pc against the greenback to 155.74 per dollar.
Sterling fell 0.19pc to $1.3356 after the BoE decision, its lowest level in seven weeks against the dollar.
In Treasury markets, bond yields pulled back from recent highs. The yield on benchmark US 10-year notes fell 5.53 basis points to 4.949pc.
Brent crude futures dropped 2.1pc to $103.70 a barrel overnight following reports Saudi Arabia was offering crude cargoes through Oman.
That helped ease some of the concerns about Middle East supply disruption, following a recent escalation of the seven-month war after attacks by Iran-backed Houthi fighters on Saudi cities.
Spot gold rose 2.34pc to $4,361.71 an ounce.
The Bank of Japan is expected to raise interest rates to a 31-year high and signal its readiness to keep pushing up borrowing costs. Market participants are focused on any hints that BOJ Governor Kazuo Ueda might give on the timing and pace of any further increase.
Mizuho expects the BOJ to normalise policy, but at a slower pace than markets currently anticipate, with rates reaching 1.75pc by mid-2027.
A key market theme is the prospect of portfolio shifts by Japan’s Government Pension Investment Fund, with investors watching whether higher domestic yields trigger repatriation flows.
The yen jumped to a seven-month high against the dollar last week, as speculative positions flipped to net-long bets on growing conviction in the Bank of Japan’s policy-tightening path.
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