US stocks jump as investors bet on slowing interest rates

by The Insights

US stocks rose on Thursday after colder-than-expected inflation data boosted traders’ hopes that the Federal Reserve could rein in its tightening cycle.

The blue-chip S&P 500 rose 1.3% in New York, closing at its highest level since Feb. 15. The tech-heavy Nasdaq gained 1.9%.

Traders were encouraged by data showing a cooling U.S. economy, with producer prices unexpectedly falling 0.1% in March, which could signal relief for consumers who have suffered lower costs. operating higher. New jobless claims data showed the number of people applying for jobless benefits rose more than expected to 239,000.

“There’s a lag in terms of jobs data because of how it’s calculated by law when people are laid off,” said Steven Blitz, chief US economist at TS Lombard. “This could well be the first bow, the unemployment rate will start to climb faster than expected, and once that happens the Federal Reserve will start to cut [interest rates].”

Minutes of the Federal Open Market Committee meeting in March, released Wednesday, showed officials forecast a “mild recession” beginning later this year, before the economy recovered in the two coming years.

The yield on two-year Treasury bills remained stable at 3.97% and 10-year bills rose 0.04 percentage points to 3.45%. Yields move inversely to prices.

“With the US economy cooling and a Fed pivot not imminent, we believe the environment for equities will remain challenging in the months ahead,” said Mark Haefele, chief investment officer at UBS Global. WealthManagement.

Investors are weighing the effect of the data and the prospect of the economy contracting as policymakers are set to meet next month to consider whether to continue with another rate hike or suspend tightening. Markets appear to have become more confident that lower inflation will convince the Fed to moderate the pace of interest rate hikes to combat consumer price pressures.

Swap markets are predicting a 70% chance of a 0.25 percentage point increase from no change, according to data from Refinitiv.

The euro rose 0.5% to its highest level in a year against the dollar. The dollar index, which measures the greenback against six peer currencies, fell 0.5% to its lowest level since February.

In Europe, investors are pricing in a more hawkish trajectory from the European Central Bank, with almost a two-in-three chance of a 0.25 percentage point hike and around a one-in-three chance of a bigger hike. by half a point.

Robert Holzmann, a member of the ECB’s governing council, said on Wednesday that the central bank should raise rates by 0.5 percentage points because “the danger of currently doing too little and stoking inflation is greater. greater than the risk of overdoing it”.

European industrial production data released on Thursday was better than expected at 1.5%, half a percentage point higher than the previous month. Yields on the 10-year German Bund rose slightly to 2.38%.

Europe’s Stoxx 600 closed 0.4% higher, London’s FTSE 100 rose 0.2% and Germany’s Dax rose 0.2%. France’s Cac 40 stood out, up 1.1%, as strong LVMH earnings boosted demand for luxury stocks.

In Asia, Hong Kong’s Hang Seng index closed up 0.2% and China’s CSI 300 fell 0.7%.

International benchmark oil Brent and its U.S. counterpart West Texas fell 1.4% and 1.3% respectively, after both gaining more than 2% on Wednesday.

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