Economic News
As Market Optimism Persists, Shares Are Expected To Rise This Week And Treasury Yields Drop.
Government bond yields were around multi-week lows globally on Friday as investors reacted to positive data and signs central banks may not boost rates as aggressively as expected. European equities were on course for a sixth straight week of gains.
Upon its return from the Thanksgiving vacation, the 10-year Treasury yield decreased to 3.65%, its lowest level since October 5, and down from a high of 4.34% in mid-October. The benchmark 10-year yield for the euro zone, which is set by Germany, was barely 0.09% above a seven-week low reached the previous day.
After taking a beating earlier this year, Europe’s STOXX 600 was little changed on Friday and on track to gain 1.5% weekly, its sixth consecutive weekly percentage gain.
According to Olivier Marciot, head of investments for multi-asset at Unigestion, “the downturn had touched all major asset classes with the exception of the dollar and hard commodities and it’s now a large reversal of that.”
“Now that that particular element is stabilizing, it creates lift for all asset classes because the rate of the (central bank) tightening cycle was unprecedented and caused that shock.”
A “substantial majority” of Fed policymakers believed it would “likely soon be appropriate” to moderate the pace of interest rate increases, according to minutes of the Fed’s most recent meeting released on Wednesday. The U.S. Federal Reserve has aggressively increased interest rates throughout this year.
Early this month, when U.S. October inflation statistics came in lower than anticipated, speculation that the rate peak is near increased.
Investors are now putting in nearly two-thirds odds that the Fed will slow to a half-point raise on December 14 after a spate of 75-basis-point hikes, according to futures markets, which imply that U.S. rates will peak slightly around 5% around May.
Positive economic news is being viewed as a reason to buy by investors in European stocks, and they found encouragement in Wednesday’s statistics that showed the German economy grew by 0.4% on the quarter and by 1.3% on the year – slightly over expectations – because of higher household spending.
The S&P 500 futures are up 0.15%, but with Thursday’s Thanksgiving break, trade is probably going to be quiet.
The recent increase in risk sentiment is reflected in currency markets as well. The safe-haven dollar is expected to weaken weekly against the majority of G10 currencies, including the euro, pound, and Japanese yen.
One of the stronger performers has been sterling, which on Thursday reached a three-and-a-half-month high of $1.2153.
CONCERNS FOR COVID IN CHINA
After China reported another record increase in daily COVID infections, Asian shares were struggling more than their European counterparts. Cities nationwide implemented localized lockdowns, mass testing, and other curbs, dash recent hopes that the nation would gradually phase out strict zero-COVID policies.
Investors have cause for concern, according to ING economist Rob Carnell. “China doesn’t have the sufficient healthcare infrastructure to handle a full-blown outbreak with multitudes of sick individuals,” the author claims.
“Living with COVID for the middle term is a lovely fantasy, but how do you get there?” asked Carnell.
Chinese onshore bluechips rose 0.5%, helped by additional government initiatives to boost the faltering real estate market, while Hong Kong’s Hang Seng fell 0.5%, driven by a 2.29 percent decline for the tech sector.
Shares in a property developer index rose 6.8%.
China announced after the market closed that it would reduce the amount of cash that banks had to keep on hand as reserves, freeing up approximately 500 billion yuan ($69.8 billion) to support the economy.
With Brent crude futures up 1.58% at $86.69 a barrel and U.S. crude futures up 2.13% at $79, the price of oil spiked sharply after falling earlier in the week.
In line with the weakening dollar, gold edged up 0.2% to roughly $1,758 per ounce.
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