Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Stocks, bonds jump as investors shrug off hawkish Fed minutes

Published 01/03/2023, 09:28 PM
Updated 01/04/2023, 04:43 PM
© Reuters. FILE PHOTO: A man on a bicycle stands in front of an electronic board showing Shanghai stock index, Nikkei share price index and  Dow Jones Industrial Average outside a brokerage in Tokyo, Japan September 22, 2022. REUTERS/Kim Kyung-Hoon

© Reuters. FILE PHOTO: A man on a bicycle stands in front of an electronic board showing Shanghai stock index, Nikkei share price index and Dow Jones Industrial Average outside a brokerage in Tokyo, Japan September 22, 2022. REUTERS/Kim Kyung-Hoon

By Koh Gui Qing

NEW YORK (Reuters) -Global stocks and bonds closed higher on Wednesday on cautious optimism about the new year after a brutal 2022, although U.S. stocks eased off session highs after the Federal Reserve released minutes from its December meeting that struck a hawkish note.

The MSCI All-World index added 0.65%, receding from earlier highs and in tandem with U.S. stocks, which pulled back after the Fed's minutes showed it was worried about any market "misperception" that its commitment to fighting inflation was flagging.

Describing the minutes as "modestly hawkish", analysts at Citi said they expect the Fed to raise rates by 50 basis points in February, and for U.S. rates to peak between 5.25% and 5.5%. U.S. rates stand at 4.25% to 4.5% currently.

"Fed officials are clearly growing more uncomfortable with the market underpricing their likely policy path and may use more hawkish rhetoric to drive front-end rates higher and financial conditions tighter," the analysts at Citi said.

U.S. stocks still ended up on the day. The S&P 500 climbed 0.75%, the Dow Jones Industrial Average rose 0.4%, and the Nasdaq Composite climbed 0.7%.

Data released on Wednesday showed U.S. job openings falling less than expected on the last day of November, indicating a still-tight labour market that could allow Fed to keep rates higher for longer.

The pan-European STOXX 600 jumped 1.4% as a lower inflation reading from France boosted sentiment, building on positive data from Germany earlier in the week.

Euro zone government bonds extended their rally from the first two trading days of 2023, with the benchmark German 10 year yield sliding around 10 basis points on signs central banks are making progress against inflation.

The yield on 10-year U.S. Treasury notes fell to 3.679%, and 2-year Treasury yields, which typically move in step with interest rate expectations, slipped to 4.3534%.

MSCI's broadest index of Asia-Pacific shares outside Japan jumped 1.8% in its third straight day of gains for the year. In 2022 it fell 20%, its biggest annual decline since 2008.

The modest recovery in stocks and bonds showed optimism about two factors that made 2022 a hellish year for investors: the constant drumbeat of rate hikes to fight inflation and China's economy-throttling anti-COVID measures.

But investors in other assets were jittery. Oil prices fell sharply, as concerns about global demand persisted amid signs of weakening activity in the main engines of global growth: the United States, Europe and China.

"Fresh warnings about the effect of aggressive rate hikes on the U.S. economy are rattling traders again, with the oil price continuing its march downwards," said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

U.S. crude fell 4.85% to $73.2 per barrel, while Brent was at $78.07, down 4.9% on the day. [O/R]

TENTATIVE START

"The market has made a pretty tentative start to the year ... (and) is still grappling with the notion of what we are going to see from the Fed this year," said Rob Carnell, head of ING's Asia-Pacific research.

"There are two camps out there and they are wrestling for dominance in terms of the view. Some days higher-for-longer wins, some days (the) higher-then-lower camp wins," Carnell said.

Hopes for less aggressive rate hikes boosted non-yielding gold, with spot prices for the precious metal hitting $1,856.57 per ounce, their highest since mid-June. [GOL/]

The dollar index, which measures the greenback against six other currencies, fell 0.45% as commodities currencies like the Australian dollar gained and the euro rose on the positive French and German inflation data. [USD/]

© Reuters. FILE PHOTO: A trader works on the trading floor at the New York Stock Exchange (NYSE) in New York City, U.S., December 14, 2022. REUTERS/Andrew Kelly/File Photo

Sterling was last trading at $1.20575, up 0.75%, while the euro rose 0.54% to $1.06050, coming off a three-week low of $1.0519 touched overnight.

The Japanese yen softened against the dollar at 132.500 per dollar.

Latest comments

Inflation is Europe is still terrible even with a few ticks down MoM.
if oil is down on week demand, why are Chinese stocks rallying? Must be another oil only recession.
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.