U.S. futures and European stocks rose on Thursday and U.S. Treasuries rallied after Federal Reserve Chairman Jay Powell hinted the central bank would slow the pace of interest rate hikes. American interest when it meets later this month.
The regional Stoxx Europe 600 rose 1.1% to its highest level since June. London’s FTSE 100 gained 0.1% and is now 1% higher for the year.
Contracts that track Wall Street’s benchmark S&P 500 and the tech-heavy Nasdaq 100 both climbed 0.2%.
US government bonds rallied on Thursday, with the yield on the two-year Treasury note, sensitive to interest rate expectations, down 0.04 percentage points to 4.32%. The 10-year yield fell 0.1 percentage point to 3.59%, its lowest level since early October. Yields fall as prices rise.
The moves came after a strong rally in US equities in the previous session, when Powell suggested the Fed was preparing to raise rates by 0.5 percentage points at its meeting in two weeks, potentially ending a series of four consecutive movements of 0.75 percentage points.
“The time to moderate the pace of rate increases may come as early as the December meeting,” Powell said during an appearance at the Brookings Institution on Wednesday.
Although Powell called the comments a pledge to “stay the course” and continue the central bank’s fight against inflation until price pressures eased, stock markets surged and Treasuries rallied as investors in futures markets raised expectations of lower interest rates by the end of 2023.
“The market considered that inflation has already passed, and that the Fed will pivot very soon and that rate hikes will subside from December,” said Didier Rabattu, head of equities at Lombard Odier Investment Management. .
“What we’re seeing in the United States is some of the main drivers of inflation going away, the price of food, gasoline, real estate, all seem to have peaked.”
The S&P 500 closed 3.1% higher on Wednesday, taking November gains to 5.4%, while the Nasdaq Composite Index gained 4.4% on the day.
The scale of the rally surprised some. “There has been no significant change since [Powell’s] previous messaging,” said Laura Cooper, senior macro strategist at BlackRock, with the Fed chairman and other officials having previously hinted that rates will rise at a slower pace later this month.
The market turmoil has presented a challenge for the Fed “as it tries to navigate this policy tightening while managing the easing in financial conditions that we are seeing as a result of these risk rallies,” added Cooper.
Chinese stocks, meanwhile, rose Thursday morning after the country’s top Covid-19 official suggested Beijing had eased its stance on pandemic restrictions. The Hang Seng index gained 0.8%, while China’s CSI 300 gained 1.1%.
Elsewhere in Asia, the Japanese Topix traded flat and the South Korean Kospi gained 0.3%.
