©Reuters. FILE PHOTO: People walk past a screen showing the Hang Seng stock index in Central District, in Hong Kong, China, July 19, 2022. REUTERS/Lam Yik
By Hugh Jones
LONDON (Reuters) – Stocks stabilized on Thursday as investors bet central banks meeting next week will signal a slowdown or even a pause in rate hikes for later in the year to make a recession less likely and ease pressure on the economy. reduce corporate profits.
Oil prices held steady after inventories rose less than expected, while gold hit a 9-month high.
The dollar teetered near an eight-month low against its peers as a dismal fourth-quarter earnings season continued ahead of next week’s meetings of the US Federal Reserve, European Central Bank and Bank of England, with all three are expected to continue raising interest rates.
In anticipation of that, the U.S. Commerce Department will release preliminary estimates of U.S. fourth-quarter gross domestic product later on Thursday, with strong growth expected to continue into the final months of 2022.
Shares rose Wednesday after the Bank of Canada became the first major central bank to announce it is ready to pause or end its tightening cycle, with markets now hoping other central banks will hint at a similar mindset next week, analysts said.
“At the end of the day, a break is very different from what markets are pricing in, which is a downgrade by the end of this year,” said Mike Hewson, chief markets strategist at CMC Markets.
“This story is more wishful thinking than anything else.”
The MSCI all-country stock index rose 0.2% to 644.68 points, just below Monday’s high for the year, with the benchmark now up 6% for 2023.
In Europe, the STOXX index of 600 leading companies rose 0.5%, holding it up about 6% for the year, recouping about half of last year’s losses.
“What the market is really looking for is what the Fed will say next week in terms of how many hikes they have in mind,” Laureline Renaud-Chatelain, fixed income strategist at Pictet Wealth Management, who expects a 25 basis point hike by the Fed meeting next week.
Markets are expecting interest rate cuts later this year and while there is momentum in equities, the unfolding Q4 earnings season is partly disappointing, leading to corrections in earnings expectations, Renaud-Chatelain said.
“We believe the Fed will make a special effort to avoid suggesting the end of the tightening process is in sight,” said Kevin Cummins (NYSE:), chief economist at NatWest Markets.
US stock index futures were slightly firmer.
CHART: ECB expects to raise again –
SEVEN MONTHS HIGH
Asian equities rose to a new seven-month high, with Hong Kong stocks catching up with gains from other markets as trading resumed after the three-day Lunar New Year holiday.
MSCI’s broadest index of Asia-Pacific stocks outside of Japan climbed 1.1% to post its fifth consecutive day of gains.
The index is up 10% year-to-date in January, buoyed by expectations of a strong economic recovery in China and hopes that most major central banks are about to end sharp rate hikes.
The spotlight will be on US GDP data expected later Thursday. The report could mark the last quarter of solid growth before the delayed effects of the Fed’s jumbo rate hikes kick in.
“Today’s release of US GDP will be critical in gauging whether market expectations shifting in favor of a soft landing rather than a recession can hold,” Saxo strategists said in a note to clients.
Hong Kong rose 2.4% on the first day of trading in the Year of the Rabbit, while falling 0.12%.
In the foreign exchange market, the , which measures the US currency against six major rivals, stood at 101.70, not far from the eight-month low of 101.51 it hit last week.
The Japanese yen rose 0.15% to 129.76 per dollar, while the pound last traded at $1.2393, down 0.06% on the day.
The yield on eased to 3.454%, while the yield on the 30-year Treasury bond was lower at 3.6092%.
A closely monitored portion of the US Treasury yield curve that measures the difference between two-year and ten-year Treasury yields, viewed as an indicator of economic expectations, was -67.70 basis points. The reversal of this curve has predicted eight of the last nine recessions, analysts said.
Oil prices held steady after US crude inventories rose less than expected. US West Texas Intermediate (WTI) crude oil was slightly firmer at $80.2 a barrel while it stood at $86.05, down 0.08% on the day. [O/R]
The gold price hit a nine-month high of $1,941 an ounce, after hitting $1,949.09 earlier in the day.