Stocks Rally As Fed’s Rate Hikes Seen Near End: Markets Wrap

Stocks rallied as investors reacted to the possible peak of the Federal Reserve’s historic tightening campaign and processed the latest major company earnings.

Rates-sensitive real estate stocks led the advance in Europe’s Stoxx 600 index, which is set for its longest winning streak since July. US equity futures pointed to an extension of Wednesday’s gains on Wall Street as Asian stocks headed for their biggest gain in almost four months.

Novo Nordisk A/S rose after reporting that third-quarter sales surged amid the frenzy for its blockbuster obesity and diabetes drugs. Shell Plc gained after accelerating the pace of share buybacks as its third-quarter profit rose. Apple Inc. headlines the roster of US earnings due later.

While the Fed left the door open to another increase after pausing Wednesday, officials hinted that a run-up in long-term Treasury yields reduces the impetus to tighten policy further. The Bank of England is likely to keep interest rates at the highest level since 2008 later Thursday, amid evidence that the UK economy, labor market and inflation are weakening.

“The Fed did not throw in the towel yesterday, but the changes in the speech are in line with a more moderate growth situation,” said Florian Ielpo, head of macro research at Lombard Odier Asset Management. “What transpires from the speech is essentially a first eyebrow raised at the real growth situation, which markets decided to take for a ‘bad news is good news’ message.”

The dollar weakened and Treasuries steadied after Wednesday’s sharp gains.

US yields were already heading lower prior to the Fed decision after the government announced plans to borrow slightly less than expected over the next three months, reassuring investors worried about a deluge of debt issuance. A gauge of US factory activity also came in below expectations, adding to concerns of an economic downturn.

In Asia, the yen extended its gains from Wednesday, while the South Korean won led emerging-market currencies higher.

Meanwhile, the rebound in the region’s stocks signaled relief among investors fretting over the expectation of higher-for-longer US rates and hikes continuing into 2024. Asian stocks lost more than 12% from the end of July through October.

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Fed Chair Jerome Powell on Wednesday noted that financial conditions have “tightened significantly in recent months driven by higher, longer—term bond yields, among other factors.” He repeatedly said the committee was moving “carefully,” a wording that often has signaled a low likelihood of any immediate change in policy, while adding that risks to the outlook have become more two-sided as the tightening campaign nears its end.

US jobs data painted a mixed picture. There were more job openings than forecast, according to the latest JOLTS data, while ADP’s private payrolls figures showed fewer new roles than anticipated. Initial jobless claims figures will be released later Thursday.

In commodities, global benchmark Brent crude oil rose past $85 a barrel, after sliding around 5% over the previous three sessions.

Key events this week:

Eurozone S&P Global Eurozone Manufacturing PMI, Thursday
Bank of England interest rate decision. Governor Andrew Bailey holds news conference, Thursday
US factory orders, initial jobless claims, productivity, Thursday
Apple earnings, Thursday
China Caixin services PMI, Friday
Eurozone unemployment, Friday
US unemployment, nonfarm payrolls, Friday
Canada employment report, Friday

Here are some of the major moves in markets:

Stocks