Home Stock Market Global Stocks Rise, Dollar Weakens as Investors Anticipate Fed’s Rate-Hiking Cycle Conclusion

Global Stocks Rise, Dollar Weakens as Investors Anticipate Fed’s Rate-Hiking Cycle Conclusion

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Global stocks maintain their upward momentum, poised for the most significant weekly gain this year, as investors anticipate the potential conclusion of the U.S. Federal Reserve’s rate-hiking cycle. Concurrently, the dollar lingers near multi-month lows, reflecting market sentiment. Recent data indicating subdued inflation further fuels optimism. European stock indexes demonstrate mixed performance, while investor focus shifts to U.S. bank earnings reports.

This week, economic data revealed that U.S. consumer prices grew at their slowest pace in over two years. Additionally, data on U.S. producer inflation displayed the smallest increase in nearly three years. These figures solidified investor expectations of milder inflationary pressures, raising hopes for a potentially extended pause in the Federal Reserve’s rate hikes.

Investors responded with confidence, propelling the MSCI World Equity index to its highest level this year. With daily gains throughout the year, the index recorded a 0.2% increase on Friday, on track for its strongest week since November 2022. This surge highlights the growing market optimism and investor appetite for riskier assets.

European stock indexes exhibited mixed performance, with MSCI’s Europe index rising by 0.2%, while London’s FTSE 100 edged up by 0.1%. However, the STOXX 600 remained relatively flat for the day. Despite the modest daily fluctuations, both indexes were set for their best week since March. Germany’s DAX, however, experienced a slight decline of 0.3%, retracing some of its recent gains.

Market analysts anticipate a 25 basis points rate hike by the Federal Reserve on July 26, although expectations for additional rate hikes later in the year have diminished. Norman Villamin, chief group strategist at UBP, echoed these sentiments, expressing his expectation of another rate hike in July while acknowledging the uncertainties surrounding the September meeting. Villamin suggested that the current market cycle may be approaching its end, even as he recognized the persistent presence of above-target inflation in the longer term.

“While we’re probably closer to the end of the cycle,” Villamin stated, “getting back to 2% is going to be a much harder task.” He emphasized that achieving a 3% inflation reading is one challenge, but returning to the Fed’s target of 2% poses a more substantial difficulty. The expectation of lingering inflationary pressures acts as a limiting factor on how low bond yields can potentially go.

Another notable factor contributing to the ongoing equity market rally is the influx of liquidity from the Federal Reserve system. Data from Refinitiv indicates that the Fed’s reserve repo account, where eligible firms deposit cash in exchange for risk-free returns, has witnessed a net increase of $500 billion since the end of April. This increase in liquidity has injected additional support into the markets, influencing investor sentiment and driving stock market gains.

The U.S. dollar index remains near 15-month lows, signaling market expectations of a potential conclusion to the rate-hiking cycle. The dollar’s decline is on track for its most substantial weekly decline since November, as investors bet on a more accommodative monetary policy stance. In contrast, the euro has remained steady at $1.1231, having touched its highest level in over 16 months.

Meanwhile, the Swedish crown is poised for its most significant weekly gain against both the dollar and euro in 14 years, reflecting changing currency dynamics and relative strength in the Swedish economy.

Eurozone government bond yields predominantly declined, with the benchmark German 10-year yield standing at 2.454%. This decline in bond yields is partly influenced by the evolving rate-hike expectations and the overall market sentiment.

Oil prices experienced a slight uptick, supported by bullish sentiment surrounding U.S. demand. Brent and WTI futures both recorded a 0.1% increase, buoyed by positive market dynamics and expectations of ongoing economic recovery.

Gold is on track for its best week since April, benefitting from dollar weakness and boosted by expectations of a pause in U.S. interest rate hikes. As the dollar declines, gold becomes relatively more attractive as a store of value and hedge against inflation.

As investor attention turns to U.S. bank earnings, financial institutions such as JPMorgan Chase, Citigroup, Wells Fargo, and BlackRock are set to report their second-quarter results later on Friday. These reports will provide insights into the financial sector’s performance and its resilience amid changing market dynamics.

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Pankaj K

Pankaj is a skilled engineer with a passion for cryptocurrencies and blockchain technology. With over five years of experience in digital marketing, Pankaj is also an avid investor and trader in the crypto sphere. As a devoted fan of the Klever ecosystem, he strongly advocates for its innovative solutions and user-friendly wallet, while continuing to appreciate the Cardano project. Like my work? Send a tip to: 0x4C6D67705aF449f0C0102D4C7C693ad4A64926e9

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