Stocks Rise on Dovish Fed Remarks; Treasuries Jump: Markets Wrap


(Bloomberg) — European shares rallied after dovish comments by Federal Reserve officials brought some risk appetite back to global markets as investors continue to evaluate the potential impact of the Israel-Hamas conflict.

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Treasuries jumped, catching up with Monday’s government bond rally, when cash trading in the US was closed. The yield on the policy-sensitive two-year Treasury dropped by the most since the end of August, while the benchmark 10-year had its best day since March. US equity futures edged higher and the dollar was steady after four days of declines.

The Stoxx Europe 600 index climbed more than 1%, heading for its best day in a month. Travel and leisure shares led the advance, while basic resources underperformed amid a plunge in iron ore. Energy was the only sector in the red as oil prices dipped after the biggest jump in six months on Monday.

Fed Vice Chair Philip Jefferson said Monday officials could “proceed carefully” following the recent rise in Treasury yields, and Fed Bank of Dallas President Lorie Logan said the surge in long-term rates may mean less need for further tightening. Another slate of Fed speakers today may add to the picture.

“The latest comments from Fed speakers have had a clear risk-on influence on the market,” said Benjamin Melman, global chief investment officer at Edmond de Rothschild Asset Management. “There’s been a clear change of tone.”

At the end of last week, traders had boosted bets on another Fed hike this year as data showed US employment unexpectedly surged in September. That narrative switched on Monday as central bank officials tamped down speculation of another rate increase in 2023.

The tensions in the Middle East, however, may escalate further after the Financial Times reported a top US general warned Iran to “not get involved” in the Israel-Hamas conflict.

The latest Middle East conflict comes at a time of ongoing geopolitical concerns, with markets also facing a period of moderating global economic growth, according to Solita Marcelli, chief investment officer Americas at UBS Global Wealth Management.

“Against this backdrop, we continue to prefer fixed income to equities,” Marcelli said. “We see a better risk-reward profile for fixed income, and we recommend investors consider buying high-quality bonds in the five- to 10-year maturity range. We foresee further cooling in inflation and slower global growth.”

The next risk to US stocks may come from fiscal policy constraints at a time when the Fed is still fighting high inflation, according to Morgan Stanley’s Michael Wilson. The strategist — among the most prominent bearish voices on Wall Street — said while the US government narrowly avoided a shutdown last week, “the lack of a resilient long-term structure that supports fiscal discipline” could have an impact on financial markets.

Key events this week:

  • Bank of England releases minutes of financial policy meeting, Tuesday

  • IMF issues its latest world economic outlook, Tuesday

  • US wholesale inventories, Tuesday

  • Fed’s Raphael Bostic, Christopher Waller, Neel Kashkari and Mary Daly speak at separate events, Tuesday

  • Germany CPI, Wednesday

  • NATO defense ministers meeting in Brussels, Wednesday

  • Russia Energy Week in Moscow, with officials from OPEC members and others, Wednesday

  • US PPI, Wednesday

  • Minutes of Fed’s September policy meeting, Wednesday

  • Fed’s Michelle Bowman and Raphael Bostic speak at separate events, Wednesday

  • Japan machinery orders, PPI, Thursday

  • Bank of Japan’s Asahi Noguchi speaks, Thursday

  • UK industrial production, Thursday

  • US initial jobless claims, CPI, Thursday

  • European Central Bank publishes account of September policy meeting, Thursday

  • Fed’s Raphael Bostic speaks, Thursday

  • China CPI, PPI, trade, Friday

  • Eurozone industrial production, Friday

  • US University of Michigan consumer sentiment, Friday

  • Citigroup, JPMorgan, Wells Fargo, BlackRock results as the quarterly earnings season kicks off, Friday

  • G20 finance ministers and central bankers meet as part of IMF gathering, Friday

  • ECB President Christine Lagarde, IMF Managing Director Kristalina Georgieva speak on IMF panel, Friday

  • Fed’s Patrick Harker speaks, Friday

Some of the main moves in markets:

Stocks

  • The Stoxx Europe 600 rose 1.2% as of 8:22 a.m. London time

  • S&P 500 futures rose 0.2%

  • Nasdaq 100 futures rose 0.2%

  • Futures on the Dow Jones Industrial Average rose 0.2%

  • The MSCI Asia Pacific Index rose 1%

  • The MSCI Emerging Markets Index rose 0.5%

Currencies

  • The Bloomberg Dollar Spot Index rose 0.2%

  • The euro was little changed at $1.0559

  • The Japanese yen fell 0.3% to 149.00 per dollar

  • The offshore yuan was little changed at 7.2973 per dollar

  • The British pound fell 0.1% to $1.2220

Cryptocurrencies

  • Bitcoin rose 0.5% to $27,701.76

  • Ether rose 1% to $1,593.3

Bonds

  • The yield on 10-year Treasuries declined 13 basis points to 4.68%

  • Germany’s 10-year yield advanced one basis point to 2.78%

  • Britain’s 10-year yield was little changed at 4.48%

Commodities

  • Brent crude fell 1.1% to $87.18 a barrel

  • Spot gold fell 0.2% to $1,856.99 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Julien Ponthus.

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