Stocks put on cruise control as interest rate cut expectations improve outlook

  • Stocks are heading for their best month since November 2020
  • Eurozone bond yields fall after weak data
  • Treasury yields are set to post their biggest monthly decline since 2008
  • Oil prices are rising ahead of the postponed OPEC+ meeting
  • Graphic: Worldwide exchange rates

LONDON, Nov 30 (Portal) – Global stock markets edged higher on Thursday, heading for their best monthly rise since the first COVID-19 vaccination breakthroughs in 2020, as the continued downward trend in global bond yields boosted confidence strengthened.

Asia had posted fresh gains of 0.2% to 0.3% overnight, and Europe followed suit as a flurry of weak economic data from Germany, France and Italy bolstered bets that interest rates will head lower next year.

The regional gains and similarly higher Wall Street futures helped lift the MSCI’s main world stock index (.MIWD00000PUS), which tracks 47 countries, by a fraction of 0.01%, adding to its jump of nearly 9% this month to consolidate.

Currency markets reacted to the European data, which also included news of a contracting French economy, by pushing the euro lower and prompting bond traders to bring forward their ECB rate cut expectations to April. /FRX

The data “confirms what we have been saying for some time: Europe is already in recession, but it is a mild recession,” said Elwin de Groot, head of macro strategy at Rabobank.

“So we are seeing these rate cut expectations taking hold in the market, although I think that is perhaps a bit exaggerated as I don’t think central banks will be enticed to cut rates early,” de Groot added, citing to the ongoing uncertainties.

As new data also shows inflation across the euro zone slowed again this month, the yield on the 10-year German government bond, the benchmark for the bloc, fell to 2.394% in early trading, its lowest level since late July.

Bond yields in the U.S. and other major economies have also fallen since reaching their highest level in more than a decade in October. U.S. Treasury yields, which typically determine global borrowing costs, have seen their sharpest decline since 2008.

Overnight, the MSCI Asia-ex-Japan stock index (.MIAPJ0000PUS) was up 0.3%, consolidating its nearly 7% rise this month, its best since January.

South Korea’s KOSPI (.KS11) led the advance with a 10.6% gain, closely followed by Taiwan (.TWII) and Japan’s Nikkei (.N225).

“It appears that market participants are clearly taking the ‘no (hard) landing’ and ‘Fed done’ scenario to heart. The modest economic stimulus in China is having a positive effect,” said John Milroy, investment advisor at Ord Minnett in Sydney.

“Inflation data and bond markets suggest that central banks are facing at least a pause in the rate hike cycle. These are markets like that,” he added.

Hong Kong’s Hang Seng Index (.HSI) reversed an early decline to close 0.3% higher, while China’s benchmark CSI300 index (.CSI300) rose 0.2% despite disappointing Chinese manufacturing data released on Thursday.

The closely watched factory survey showed manufacturing activity fell for a second straight day in November and at a faster pace, suggesting more government support is needed to boost growth in the world’s second-largest economy.

The Hang Seng has lost half a percentage point this month, while the CSI300 has fallen over 2% and even lower for the fourth month in a row.

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Oil prices rose again after rising more than $1 on Wednesday ahead of expected production cuts by the OPEC+ group. Brent rose 1.25% to $84.15 a barrel in London, while safe-haven metal gold fell to $2,038 an ounce.

While Federal Reserve officials sent mixed messages on Wednesday, investors remained focused on Tuesday’s comments from Fed Governor Christopher Waller, an influential and previously hawkish voice at the bank. Waller had said rate cuts could begin in a few months if inflation continues to ease.

The highly anticipated U.S. consumer spending inflation report will be released on Thursday. Fed Chairman Powell will also speak on Friday and is expected to provide key insights ahead of the bank’s December meeting.

Financial conditions in the U.S. are at their loosest since early September, easing by 100 basis points in a month, according to Goldman Sachs.

U.S. interest rate futures markets are now pricing in more than 100 basis points of rate cuts next year starting in May, and the two-year Treasury yield is at its lowest level since July – down nearly 40 basis points this week alone.

“Without rapid Fed easing, we expect a more difficult macroeconomic environment for stocks next year with weakening consumer trends at a time when investor positioning and sentiment have largely reversed,” JPMorgan analysts said in a note to their global Outlook for 2024.

Reporting by Marc Jones; Edited by Miral Fahmy

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