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Optimism fuels global stocks, Yen weakness persists

May 7, 2024

Key points:

  • MSCI’s ACWI index reaches its highest point since June 2022.
  • Expectations of rate cuts by major central banks propel stock markets globally.

Global stock markets experienced a significant rally on Monday, driven by the anticipation that major central banks might implement rate cuts later this year. This sentiment was further bolstered by a softer-than-expected U.S. labor market report last Friday, prompting traders to anticipate potential easing of monetary policy by the Federal Reserve as early as September.

U.S. Dollar slips as job data softens

The U.S. dollar weakened against a basket of six major currencies for the fourth consecutive session, influenced by the recent jobs data which recorded the lowest gains since October. This development helped alleviate concerns over another potential interest rate hike by the Fed. Fed Chairman Jerome Powell indicated that an increase was unlikely, encouraging market participants to lean towards expectations of a cut.

Despite these optimistic projections, the inflation outlook remains uncertain, with ongoing debates about whether current rates are sufficient to slow the economy and curb inflation. New York Fed President John Williams and Richmond Fed President Thomas Barkin have both hinted at the necessity of maintaining restrictive monetary policies to combat inflation effectively.

European stocks climb on ECB’s rate cut optimism

In Europe, the Stoxx 600 index saw a rise of 0.53%, fueled by remarks from European Central Bank officials who expressed confidence in reducing rates as inflation in the eurozone shows signs of slowing down. This positive sentiment is supported by the ECB policymakers’ belief that inflation will align with the central target by mid-next year.

You might be interested: Euro Zone Bond Yields drop following U.S. economic data 

Global markets rally on rate cut speculation

On Wall Street, indices like the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite saw gains of 0.46%, 1.03%, and 1.19% respectively, reflecting a robust response to the rate cut speculations and the weakening dollar.

Day candle chart of a rising S&P 500 index as seen on VT Markets trading app.

Picture: S&P 500 index on the rise as seen on VT Markets trading app.

In Asia, the MSCI’s broadest index of Asia-Pacific shares outside Japan hit its highest level since February 2023, with notable performances in China’s blue-chip index and Hong Kong’s Hang Seng Index, which continued its winning streak.

Also read: Asian stocks climb, Yen continues descent

Oil prices edge up on Saudi Arabia’s move

The U.S. Treasury yields saw a minor decline as the market digested the implications of subdued job growth, which may support a non-aggressive stance on rate hikes. Meanwhile, oil prices witnessed a slight increase following Saudi Arabia’s decision to hike crude prices for June.

In the currency markets, the yen experienced volatility, weakening against the dollar as the market remained vigilant for any further intervention by Japanese authorities after significant spending last week to bolster the yen.Start trading now — click here to create your live CFD trading account.