LONDON, Nov 11 (Reuters) – A relief rally in global shares entered a second day on Friday and the dollar fell as investors bet that peaked U.S. inflation will prompt the Federal Reserve to ease the pace of rate hikes.
Oil prices rose after health authorities in top global crude importer China eased some of the country’s heavy covid restrictions.
The S&P 500 (.SPX) and Nasdaq (.IXIC) posted their biggest daily percentage gains in more than 2-1/2 years on Thursday after U.S. data showed prices rose less than expected in October.
On Friday, the MSCI all country share index (.MIWD00000PUS) rose 1%, taking it back to its highest levels since mid-September.
In Europe, the STOXX (.STOXX) index of 600 companies rose 0.6%, building on its 2.8% jump on Thursday to an 11-week closing high.
“You’ve got a number of Fed speakers starting to call for a step down and the markets are running with it, pricing in some sort of pivot, but that’s not going to happen in the near term,” said Mike Hewson, market analyst. at CMC Markets.
“It’s more of a sigh of relief after a cacophony of bad news over the past month or so. While the data may be improving in the US, it’s certainly not the case in Europe.”
Fed policymakers on Thursday signaled a more gradual approach to raising interest rates, but made clear the direction was set to tame 40-year high inflation.
Market bets on the Fed raising interest rates by 50 basis points instead of 75 basis points increased.
In Europe, however, data on Friday showed German inflation remains high, with European Central Bank hawks calling for interest rates to rise enough to dampen growth to tame prices.
Britain’s economy shrank in the three months to September at the start of what is likely to be a prolonged recession.
UK Chancellor of the Exchequer Jeremy Hunt said his fiscal policy statement next week will contain “extremely tough decisions” to restore confidence and economic stability.
John O’Toole, global head of multi-asset investment solutions at asset manager Amundi, said the stock market reaction to US inflation data showed investors were “quite desperate” for good news and could be getting ahead of themselves.
“Even though we are closer to the end than we are to the beginning of a tightening cycle, that doesn’t mean that interest rates won’t stay at an elevated level for a long time, and that’s something that the financial markets just don’t have in their view,” said O’Toole.
The weaker outlook for corporate profits and jobs has yet to be fully priced into markets, he added.
S&P 500 stock index futures rose 0.7%.
Investors poured into riskier assets after US data, with the dollar suffering its biggest daily drop in 13 years on Thursday. The dollar fell 0.5% on Friday.
U.S. Treasury yields moved significantly lower as investors revised down their expectations of where U.S. interest rates could peak, with the benchmark 10-year note falling below 4% to its lowest in more than a month.
“It’s something the market has been waiting for for a long time,” said Shane Oliver, head of investment strategy and chief economist at AMP Capital. “There was a lot of money sitting on the sidelines.”
“The data and market reaction are reminiscent of previous cycles of optimism about the ease with which the Fed can curb excessive inflation,” Citi bank added.
Asian shares rose to seven-week highs, with MSCI’s broadest index of the Asia-Pacific region outside Japan (.MIAPJ0000PUS) up 5.6%, set for its biggest one-day percentage gain since March 2020.
The index is down 23% for the year but is on course for a weekly gain of more than 7%, the biggest in more than two years as expectations of a less aggressive Fed washed through global markets.
In China, health authorities on Friday eased the country’s heavy curbs on Covid-19, including shortening quarantine times by two days for close contacts of cases and incoming travelers.
The country’s blue-chip CSI 300 index (.CSI300) rose 2.8% and the Hang Seng index (.HSI) rose 7.7%.
Elsewhere, the crypto world remained gripped by the outlook for crypto exchange FTX. Regulators froze some assets at FTX and industry peers scrambled to limit losses on Friday as solvency problems worsened.
The company was trying to raise about $9.4 billion from investors and rivals, Reuters reported. FTX’s native token FTT fell 9% to $3,398, after falling 90% month-to-date. Bitcoin fell 0.7% to $17,423.
Meanwhile, oil prices rose on Friday after U.S. inflation data but were headed for weekly declines of more than 4% on Covid-related concerns in China.
US crude rose 2.6% to $88.65 a barrel and Brent was at $95.84, up 2.4% on the day.
Reporting by Huw Jones; Editing by Edwina Gibbs and Barbara Lewis
Our standards: Thomson Reuters Trust Principles.
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