Bulls attack after Fed signaled smaller rate hikes from Health & Fitness Journal

©Health & Fitness Journal. FILE PHOTO: An electronic board displays stock indexes of Shanghai and Shenzhen in the Lujiazui financial district following the outbreak of the coronavirus disease (COVID-19) in Shanghai, China, November 14, 2022. REUTERS/Aly Song/File Photo

By Marc Jones

LONDON (Health & Fitness Journal) – Bulls enjoyed the good life on Thursday after the world’s most influential central banker, Jerome Powell, signaled the frantic pace of US interest rate hikes this year may soon be slowing.

It was a textbook “risk-on” pattern, with both Europe’s and MSCI’s main world stock index hitting their highest levels since August and the previously unstoppable dollar huddled at a three-month low.

Rising bond markets pushed borrowing costs down almost everywhere, and while it looked like Wall Street might get a flat start later, higher oil and metals prices suggested that even commodity markets are now seeing hope for the ailing global economy.

“It makes perfect sense,” said Olivier Marciot, senior portfolio manager at Unigestion, saying it’s a case of “it’s not that bad anymore, so it’s good.”

“We have confirmation that central banks are not becoming ever tighter and confirmation that inflation is slowly decelerating.”

Since the Fed first hinted at a change in sentiment in mid-October, European and global equities have rallied more than 17% and the dollar is down 7.5%.

Fed Chair Powell said on Wednesday the Federal Reserve could scale back the pace of rate hikes from the recent 75 basis points “once in December,” though he still warned the fight against inflation was far from over.

“It makes sense to moderate the pace of our rate hikes as we approach levels of dovishness sufficient to bring inflation down,” Powell said in comments lifting Wall Street’s 3%.

Asian equities rose 1.35% overnight, coupled with fresh signs that China is trying to ease the COVID confinement where it can.

They posted their biggest monthly gain since 1998 in November as hopes of a Fed switch to slower rate hikes gained momentum after four consecutive 75bp hikes. But the index was still down about 17.5% year over year.

European markets, meanwhile, largely brushed aside German data, which showed continued weak demand in its powerful manufacturing sector, which may instead have been helped by signs of lessened material shortages.

The euro rose 0.35% to $1.0445 after previously trading as high as $1.0463.

The British pound, which has regained shape in recent months, rose over 1% to $1.2187, while a rise in the yen meant the yen – which measures the currency against six major peers – fell another 0. 5% collapsed.

“Obviously, the speech (from Powell) was less hawkish than feared,” said Rodrigo Catril, senior foreign exchange strategist at National Australia Bank (OTC:). “The yen is leading the charge and that makes sense given the big, big move in US long-term interest rates.”

Graphic: Equities are recovering

RENTAL FEES

Markets are currently pricing in a 91% chance that the Fed will hike rates by 50 basis points on December 14th and just a 9% chance of another 75 basis point hike.

Expectations have also grown around the world that China, while still trying to contain infections, could reopen sometime next year once it achieves better vaccination rates among its elderly.

China’s factory activity shrank in November as widespread shutdowns disrupted manufacturers’ production, a private sector survey showed on Thursday, weighing on employment and economic growth in the third quarter.

However, that didn’t stop US investment bank JPMorgan (NYSE:) from forecasting a 9-10% gain in Chinese stocks by the end of next year when confidence returns. They are already up almost 10% in the last 4-6 weeks.

The yield was last down over 10 basis points to 3.592%, while the US two-year yield, which normally moves in step with interest rate expectations, fell to 4.332%.

Germany’s 10-year yield, the benchmark for the eurozone, fell below 1.80%. The two-year yield fell 10.5 basis points to 2.039%.

Jefferies rates strategist Mohit Kumar said, “The market had set expectations for a hawkish Powell and it definitely didn’t deliver.”

In commodity markets, gold prices climbed to a two-week high of $1,779.39 an ounce, while oil edged higher, helped by signs that OPEC+ could tighten supply further at a meeting on Sunday.

was up 44 cents, or 0.5%, to $87.41 a barrel by 0930 GMT, while US West Texas Intermediate crude oil futures were up 55 cents, or 0.7%, to $81.10.