Record High Stocks Bask In Rate Cut Hopes

World stocks scored a third straight record high and bond markets were rallying on Thursday as galvanized hopes of interest rates cuts in the United States and other major economies extended a month-long global bull run.

Investors were still basking in the glow of Wednesday’s mild U.S. inflation data and growing optimism in Asia that China was finally looking at the kind of measures that might ease its property crisis.

MSCI’s benchmark world stocks index (.MIWD00000PUS), which tracks 47 countries, was up for a sixth straight day, Wall Street futures were pointing higher and the STOXX 600 (.STOXX), was looking to take Europe’s winning streak to 10 days, the longest since August 2021.

Japan’s yen was enjoying more respite from the dollar while U.S. benchmark government bond yields – which drive the global cost of borrowing – hit one-month lows on bets the U.S. might now cut its interest rates twice this year.

“Also, up until not too long ago, the market was focused on the U.S. outperforming Europe on many fronts. But now that has almost started to reverse,” he added, pointing to another monthly improvement in euro zone industrial production data.

Overnight in Asia, Chinese and Hong Kong property shares had rallied as well after reports that Beijing was considering a plan for local governments to buy up millions of unsold homes across the country.

The CSI 300 real estate index (.CSI000952), and mainland property developers traded in Hong Kong (.HSMPI), jumped 3.5% and 4.9%, respectively, while the yuan rose as the U.S. dollar wilted in the wake of Wednesday’s inflation data.

The U.S. currency was at fresh multi-week lows against the euro and sterling in Europe too. /FRX U.S. Treasury yields also extended their retreat, sinking to six-week troughs. That in turn helped the yen’s recent recovery despite data showing the Japanese economy contracting more than expected.

HATS AT THE READY

U.S. stock index futures were fractionally higher after the S&P 500, Dow Jones Industrial Average and Nasdaq had all notched individual all-time high finishes the previous day.

The rates market is now back to betting on two quarter-point interest rate cuts from the Federal Reserve this year, with traders seeing a 72.6% chance of the first one in September, according to the CME FedWatch Tool.

Dow bulls are on hoping it will break the 40,000-mark for the first time later. If it does it would mark the blue-chip index’s fastest ever 10,000-point climb having also been powered up by a robust company earnings season in recent weeks.

For FX followers, the dollar had slipped to 154.62 yen in Europe from as high as 156.55 in the previous session.

Gold bugs were inching the precious metal back towards record levels and oil pushed up again after rebounding strongly overnight from a two-month trough.

Wider volatility gauges like the VIX (.VIX), have also been sunk by the recent market surges and Close Brothers Asset Management Chief Investment Officer Robert Alster said the U.S. inflation data had been a huge relief for the rate cut hopefuls.

“It has led to quite a big move in the markets,” Alster said, “which is very good for those of us that are positioned marginally overweight in equities”.

Source

Arvinth Akash