LONDON, Nov 24 (Reuters) – The ECB will be plowed out of Frankfurt on Thursday after the Federal Reserve signaled a smaller rate hike from next month.
With Wall Street closed for Thanksgiving, it was up to Europe to continue the recovery in market confidence that had been building for more than a month.
London’s FTSE seemed a little reluctant to waver, but there were enough overnight gains to keep things moving in the rest of Europe and Asia.
By lunchtime, MSCI’s index of world shares (.MIWD00000PUS) of 47 countries was at its highest since mid-September, while German and British government bond yields fell to their lowest levels since October and September respectively, raising Europe’s borrowing costs.
“Federal Reserve minutes showed that some sensitive voices were trying to drown out Fed Chair Powell’s relentless ‘hike, hike, hike’ slogan,” said Paul Donovan, chief economist at UBS.
In minutes released Wednesday, a “substantial majority” of Fed policymakers agreed that slowing the pace of interest rate hikes is “likely to be appropriate soon,” although Donovan said there was no actual signal to stop yet and various Fed members said interest rates should be “somewhat higher” than expected. they thought they could.
Futures markets indicate that investors now see US interest rates rising to just above 5% by May, with a roughly 75% chance that the Fed will move to a 50 bps rate hike rather than the 75 bps it has been using lately.
Equivalent minutes from the ECB on Thursday showed interest rate-setters fearing inflation may now be firming in the euro zone.
Isabel Schnabel, one of its most influential board members, said separately: “Information so far suggests that the scope for slowing the pace of rate hikes remains limited, even as we approach estimates of a ‘neutral’ rate.”
For currency markets, this meant a continuation of the dollar’s 7-week slide. /FRX
The euro rose to $1.0447, close to a four-month high of $1.0481, while the greenback was down 0.6% against the Japanese yen at 138.70 yen and over $1.20 against sterling.
“The dollar may remain under pressure for a bit longer, but this is likely to offset Fed-related downside,” ING analysts wrote.
The Fed was not the only focus. Sweden’s crown rose as its central bank raised interest rates by three-quarters of a percentage point to 2.5% and signaled more next year. read more
Germany’s closely followed Ifo business climate index also rose more than expected following some positive data from France, while Turkey surprised no one as it cut interest rates by another 150 bps despite high inflation of more than 85%.
Although the Central Bank of Turkey announced that the reductions have ended, it raises doubts that the lira will fall to a new record level with the presidential elections to be held next year.
Overnight, Asian markets saw Japan’s Nikkei (.N225) and South Korean shares (.KS11) both up about 1%.
The Bank of Korea cut interest rates to 25 basis points. In Japan, data showed that manufacturing activity shrank at the fastest rate in two years.
China’s property stocks (.HSMPI) also rose nearly 7%, after banks there pledged at least $38 billion in fresh credit lines to cash-strapped developers, while the Shanghai Composite Index (.SSEC) fell 0.25% as the country’s COVID cases continued. lost wave.
In the oil market, prices were moving towards the main support level established in September. If they break it, oil could fall to levels not seen before the end of 2021.
Brent oil futures fell 0.3% to $85.13. US crude oil futures fell 0.2% to $77.74 per barrel. They lost more than 3% on Wednesday as the Group of Seven (G7) countries considered Russian oil prices above current market levels.
Recession fears remain strong. Wednesday’s post-Fed U.S. bond market moves saw yields on the 10-year note fall to a whopping 79 basis points shortfall relative to two-year yields.
Such a curve inversion has not been seen since the dot-com bust in 2000 and appears to be a signal that investors are expecting a deep economic downturn in the coming months.
Additional reporting by Stella Qiu in Sydney; Edited by Robert Birsel, William Maclean
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