Global shares rally on rate cut hopes, yen weakens

Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., April 29, 2024. REUTERS/Brendan McDermid

By Herbert Lash and Nell Mackenzie

NEW YORK/LONDON (Reuters) -A gauge of global stock markets rallied on Monday on optimism that major central banks will cut interest rates this year, while the yen weakened against the dollar after a surge last week from Japan’s suspected currency intervention.

Stocks on both sides of the Atlantic advanced, and in Asia too, as a softer-than-expected U.S. labor market report on Friday led traders to revive bets that the Federal Reserve would ease monetary policy as early as September.

The dollar index, a measure of the U.S. currency against six major trading peers, was lower for a fourth straight session after Friday’s data showed the lowest jobs gain since October calmed any angst that the Fed might even hike again.

Fed Chairman Jerome Powell “told the market that a hike was unlikely. Those were his words, ‘unlikely,’ and therefore they took that to mean that he wants to cut,” said Brad Conger, chief investment officer at Hirtle Callaghan & Co in Conshohocken, Pennsylvania.

However, the inflation outlook is still uncertain as the market hopes rates are restrictive enough to slow the economy and reduce the pace of price increases, Conger said.

New York Fed President John Williams on Monday said that at some undefined point the U.S. central bank will lower its rate target, but for now monetary policy is in a “very good place,” while Richmond Fed President Thomas Barkin said the battle against inflation will likely require a hit to demand.

On Wall Street, the Dow Jones Industrial Average rose 0.46%, the S&P 500 gained 1.03% and the Nasdaq Composite advanced 1.19%.

In Europe, the pan-regional STOXX 600 closed up 0.53% on signs the European Central Bank is more confident about cutting rates as euro zone inflation continues to decelerate, three ECB policymakers said.

Philip Lane, Gediminas Simkus and Boris Vujcic said separately that the inflation and growth data cemented their belief that euro zone inflation, which was 2.4% in April, will slow to the central bank’s 2% target by the middle of next year.

MSCI’s gauge of stocks across the globe rose 0.50% to close at 1,066.73, it’s highest since June 2022. Markets in Britain and Japan were closed for public holidays.

The dollar index fell 0.07% to 105.10, leaving the euro up 0.07% at $1.0766. Goldman Sachs raised its 2024 EPS growth forecast for STOXX 600 companies to 6% from 3% earlier, 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 ticked lower as investors assessed last week’s subdued job creation, which reinforced view that the U.S. economy was not overheating enough to derail a rate cut.

The yield on benchmark U.S. 10-year notes fell 1.3 basis points to 4.487%, from 4.5% late on Friday.

Traders are now pricing in 43 basis points of Fed rate cuts by year end, with the first cut possibly in September, according to LSEG’s rate probability app. In recent weeks, traders had priced in just one cut due to signs of sticky inflation.

Oil prices rose after Saudi Arabia hiked June crude prices for most regions and as the prospect of a quick agreement for a Gaza ceasefire deal appeared slim, reviving fears that combat between Hamas and Israeli forces will resume soon.

U.S. crude settled up 37 cents at $78.48 a barrel and Brent rose 37 cents to settle at $83.33 per barrel.[O/R]

MSCI’s broadest index of Asia-Pacific shares outside Japan peaked at its highest level since February 2023 and closed 0.66% higher, while China’s blue-chip index ended up 1.5%.

Hong Kong’s Hang Seng Index rose 4.7% last week and on Friday clocked its longest daily winning streak since 2018, closing 0.55% higher on Monday.

INTERVENTION WATCH

Elsewhere, traders remained on alert for further volatility in the yen, after last week’s bouts of suspected intervention from Japanese authorities to stop a sharp slide in the currency.

Tokyo is believed to have spent more than 9 trillion yen($59 billion) to support its currency last week, as suggested by data from Bank of Japan, taking the yen from a 34-year low of 160.245 per dollar to a roughly one-month high of 151.86 over the span of a week.

The yen gave back some of those gains on Monday and was last 0.63% lower at 153.95 per dollar.

Gold prices climbed as the dollar weakened. U.S. gold futures for June delivery settled 0.9% higher at $2,331.20 per ounce.

Bitcoin gained 0.65% at $63,343.00 and ethereum declined 1.2% at $3,077.3.

(Reporting by Herbert Lash, additional reporting by Nell Mackenzie, Rae Wee and Roshan Abraham; Editing by Ed Osmond, Toby Chopra, Nick Macfie and Jonathan Oatis)