Investors bought stocks and bonds Thursday to take advantage of signs that interest rates were close to peaking on both the Atlantic and Atlantic sides.
Wall Street stocks rose to their highest level since August while European government bonds saw their largest one-day rally for years.
The broad S&P 500 equity index closed 1.5 percent higher in the US. The Nasdaq Composite rose 3.3%, led by tech stocks like Meta, who is also the owner of Facebook. The closing level of the Nasdaq was 19.5 percent higher than its December low.
The rally in US Treasury bonds continued after the Federal Reserve raised interest rate more moderately than usual over recent months. This suggested that an aggressive series rates rises were nearing an end. Chair Jay Powell stated that “for first time, the disinflationary proces has started” for consumer goods. This comment markets took to be a dovish signal.
The yields on 10-year US Treasury Notes fell to 3.40 percent, their lowest level since September. Rate-sensitive yields on 2-year US Treasury notes fell 0.03 percentage point to 4.10 percent. When bond prices rise, yields on bonds fall.
Randy Frederick, Charles Schwab’s managing director of trading derivatives and trading, stated that everyone wants to be in the market before a pause in rate increases. “Most people doubted whether the Fed could engineer a soft landing. But so far, they have. . . It doesn’t feel recession-like.
On Thursday, the Bank of England expressed similar sentiments towards the Fed. The BoE’s half point interest rate increase was widely anticipated, but it also dropped its previous guidance that it would continue “forcefully” to curb inflation.
Christine Lagarde, president of the European Central Bank, vowed to “stay on the course” after her institution raised rates by half a percentage point. She also promised to do the same in March. Lagarde stressed, however, that future rate decisions will be influenced by upcoming economic data.
Charlie McElligott from Nomura, an analyst, said that markets are now in a winning position on what appears to be coordinated ‘light at end of the tunnel’ signalling by central banks.
He said, “The market has voted with their feet, the train is leaving the station, highly-speculative stuff exploding higher and bond yields are falling,” “[Central banks] have added fuel to the flame.”
Europe’s Stoxx 600 closed over 1.3 percent higher, while Germany’s Dax rose 2.2 percent. The FTSE 100 gained 0.8 percent.
Due to rising prices, the yield on the German 10-year bond fell 0.2 percentage points, to 2.09 percent. The yields on the 10-year Italian bonds, which are more risky, fell 0.4% to 3.90%.The UK traders expect that the BoE will not raise rates again until the end of this cycle. Borrowing costs are expected to peak at 4.25 percent by August. Markets in the eurozone expect rates to reach 3.25 percent this summer, an increase from 2.5%.
Matthew Rees, Global Bond Strategies Head at Legal & General, stated that markets wanted to rally and were getting excited. He said that officials from the three central banks had been “a little more hawkish” when they spoke of their intentions.
The dollar index, which measures the US currency against six peers, traded 0.5% higher on Thursday. It had fallen more than 10% in the last three months due to slower interest rate increases.
Asia: Hong Kong’s Hang Seng index fell 0.5%, China’s CSI 300 slipped 0.3%, and Japan’s Nikkei rose 0.2%.