© Reuters. FILE PHOTO: Pedestrians walk past an electronic board displaying the Nikkei stock average, outside a brokerage house in Tokyo, Japan October 31, 2023. REUTERS/Kim Kyung-Hoon/File Photo
By Dhara Ranasinghe
LONDON (Reuters) – World stock markets held close to their highest level in two months on Friday, while oil prices were expected to fall for a fourth week, boosting the inflation outlook and stock markets Government bonds are increasingly confident about the prospect of interest rate cuts next year.
The dollar slipped 1% against the yen and is expected to see one of its biggest weekly declines against other major currencies this year as market rate expectations evolve.
The MSCI world stock index edged back toward highs reached earlier this week, while European stocks rose 1% and U.S. stock futures pointed to a positive open for Wall Street later.
Oil prices attempted to rebound after falling nearly 5% on Thursday to a four-month low, a move blamed on economic and supply concerns, although technical selling likely played a role as the bulwark of $80 has broken. [O/R]
was last up 1% at $78.23 a barrel, but still down nearly 20% from a high of $97.69 in late September. also rose 1% to $73.7.
Whatever the cause, the recent rout is expected to put further downward pressure on global inflation and reinforce expectations for policy easing next year.
The softer tone of U.S. economic data this week fueled bets on rate cuts, pushing Treasury yields lower and boosting stock markets.
November has seen one of the strongest stock market performances this year so far, with the MSCI World Stock Index and both up more than 7%.
“We’re still in this environment where we’re at the end of the cycle and flirting with the idea of whether or not we’re going into recession,” said Justin Onuekwusi, chief investment officer of investment firm St James’s Place.
“This is the main reason why central bank expectations have become a key driver of risk and, at present, it is difficult to see beyond the short term.”
BONDS ARE COMING OUT
Global bond markets were in a bullish mood.
The decline in U.S. Treasury yields accelerated, with the 10-year yield falling to its lowest level since September, at around 4.38%, a sharp decline from the month’s high of 5.02%. last.
Two-year Treasury yields are down 25 basis points for the week at 4.81%. This means they are expected to see their best weekly performance since March, when a banking crisis hit global markets.
Yields on rate-sensitive two-year bonds in Germany and Britain have fallen to their lowest levels since June, with money markets now pricing in around 100 basis points of rate cuts in the United States and the euro zone. .
Corporate bond spreads also tightened significantly this week, a further sign of renewed risk appetite.
“The most striking figure this week was the (US) CPI, which was a little below consensus and caused some euphoria in the bond markets,” said Christian Hantel, portfolio manager at Vontobel Fixed Income Boutique.
“That tells you two things. Firstly, in terms of inflation, we continue to move in the right direction and secondly, there had been doubts in the markets about a soft landing. So as “more data confirmed this point of view, there was a strong gesture.”
Data released Tuesday showed U.S. consumer prices remained unchanged in October and the annual rise in core inflation was the smallest in two years.
Adding to the disinflationary theme were comments from Walmart (NYSE:) executives that costs were “more under control” and that they planned to reduce prices for the holiday season.
BEAT THE DOLLAR
In foreign exchange markets, the drastic change in market pricing for the Fed weighed on the dollar, with the US currency falling 1% below 150 yen.
The euro firmed a fifth of a percent to $1.0872 and sterling reversed earlier declines to firm slightly at $1.2433.
In Asia, stocks outside Japan fell 0.45%, while they closed up 0.48%, up about 3% for the week, helped by reassurance from the Bank of Japan according to which it would stick to its very accommodating policy.
Chinese blue chip stocks were down 0.12%, having missed the broader rally so far this week. Ali Baba (NYSE:) The group’s shares in Hong Kong fell 10% after it abandoned plans to spin off its cloud business.
Sentiment in Asia was supported by the apparent easing of tensions between the United States and China, with the Chinese press welcoming the meeting between President Xi Jinping and President Joe Biden.
Gold rose as high as $1,989 an ounce, an increase of about 0.45%. [GOL/]