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Fed up, BoE up, stocks up, ECB up next

2023-02-02T13:20:49Z

Higher stock markets showed the bulls were still in charge on Thursday as the Bank of England followed the U.S. Federal Reserve in hiking interest rates, with the European Central Bank expected to do the same shortly.

Despite the ongoing harmony of hikes, traders were holding on to the view that after one of most rapid run of rate rises in history the heavyweights in the central banking ring were probably running out of punches.

Fed chair Jerome Powell’s message that a “disinflationary” process was taking hold had kept both European shares and Wall Street pointing higher , and the dollar near a 10-month low. /FRX

After Wednesday’s 25 basis point Fed hike, the BoE’s policymakers had raised Britain’s by 50 basis points with a thumping 7-2 majority. The ECB was expected to do the same at 1315 GMT.

The usual pre-decision lull left the euro flat at just under $1.10, and while the pound was a still groggy 0.5% lower after the BoE raise, the parallel drop in bond market borrowing costs left the gap between U.S. and German 10-year yields at its smallest since September 2020.

Dirk Schumacher, head of European macro research at Natixis, said that both the Fed and BoE were now effectively at the point of “fine tuning”, whereas the ECB still had more ground to cover having started its hikes later.

“The questions is really how much there is to come,” Schumacher said. “These are difficult waters and some guidance is what the markets are looking for.”

Away from the central bank action, there was more drama in India as one of its biggest firms, Adani Group, was forced the axe a long-planned $2.5 billion stock offer in the wake of allegations, denied by the firm, of hidden debt and stock manipulation.

Its flagship firm Adani Enterprises (ADEL.NS) plunged 10% on Thursday, taking the wider group’s overall losses since the scandal erupted to more than $100 billion.

Elsewhere, though, it did not derail the optimism that slowing, stopping and eventually lower interest rates in major economies will avoid a major economic slowdown.

MSCI’s broadest index of global shares, which covers 47 countries was up 0.25 having just hit a near six-month high.

Nasdaq futures were up 1.3%, thanks to an additional boost of a $40 billion Meta (META.O) share buyback plan announced after-hours in the previous session, which was lifting tech stocks elsewhere.

Asia-Pacific shares (.MIAP00000PUS) where some of the biggest microchip makers and Chinese internet giants are listed closed up 0.2%.

That index is now up nearly 30% since October, helped heavily by China abandoning many of its COVID-19 restrictions.

The Fed’s 25 basis points interest rate increase on Wednesday came after a year of larger hikes. Though its statement said policymakers expected “ongoing increases” going forward traders leapt on Powell’s “disinflationary” view.

Ali Hassan, portfolio manager and managing director at Thornburg Investment Management, said Powell had also seemingly shrugged off easing financial conditions as a concern in his news conference. “This was a green light that the market could buy without feeling that they are fighting the Fed.”

Jamie Niven, a Senior Fund Manager at Candriam, said the BoE might now make only one more hike after its 10th in a row took UK rates to 4% or maybe even none if global growth splutters again.

Saxo Markets strategists said the ECB had surpassed its peers in hawkishness recently, and would likely repeat that shortly.

U.S. earnings season is in full swing too. Facebook owner Meta (META.O) was set to surge after its after-hours buyback news while internet giants Apple (AAPL.O) and Amazon (AMZN.O) are also due to report later.

In the currency market, the dollar buckled following Powell’s remarks on Wednesday but was little changed at 101.50 as U.S. trading started gathering momentum.

The euro was in ECB wait mode at, the yen was stalled at 128.97 per dollar, while sterling was down below $1.23 having been above 1.24 earlier in the week.

In commodities, oil steadied, having climbed on the back the soft dollar, while gold added 0.2% to $1,953.44 an ounce, having touched a nine-month high of $1,957 per ounce earlier.

Brent was at $82.23, down 0.75% on the day, while West Texas Intermediate (WTI) U.S. crude sat at $75.93 per barrel.

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