US blue-chip stocks rose on Friday as investors took heart from a dovish set of Federal Reserve minutes published earlier in the week.
The benchmark S&P 500 opened up 0.1 per cent in early trade in New York as the market reopened following the Thanksgiving break. The tech heavy Nasdaq Composite was down 0.3 per cent as investors took some profits. Both markets will close early on Friday.
The S&P is set to end the week more than 1 per cent higher after minutes from the Fed’s November meeting, at which the central bank raised its main policy rate by 0.75 percentage points for the fourth time in a row, suggested a majority of officials are committed to slowing down the pace of interest rate rises soon, when they are confident inflation has been tamed.
“We are probably seeing the end of the central bank storm, and that is enough of a relief for most markets to see positive performances,” said Florian Ielpo, head of macro at Lombard Odier Asset Management. “The Fed is not behind the curve any more, or so it seems.”
US government bonds fell as fears lingered over the pace of rate changes. The two-year Treasury yield, which is particularly sensitive to interest rate expectations, added 0.02 percentage points to 4.5 per cent. The benchmark 10-year Treasury yield also rose 0.02 percentage points to 3.73 per cent as the price of the security fell.
The yield on 10-year Treasuries surged as high as 4.24 per cent in late October, its highest level since 2008, but has tumbled since as investors have begun to bet that inflation in the world’s biggest economy may have peaked. Inflation eats into the value of bonds’ fixed payments, rendering them less attractive to investors.
The US dollar index, meanwhile, rose 0.4 per cent against a basket of six peers, trimming its more than 4 per cent decline so far in November.
European stocks were lower after a European Central Bank official warned that further aggressive interest rate rises may be needed to combat persistent inflation in the eurozone.
The regional Stoxx Europe 600 was down 0.2 per cent, off a three-month high after having risen more than 15 per cent since its late-September low. London’s FTSE 100 rose 0.1 per cent.
The moves in equity markets came a day after Isabel Schnabel, an ECB executive board member, signalled her desire to continue with rate rises of 0.75 percentage points in order to bring eurozone inflation down from record highs.
The ECB has implemented two such rate increases in a row, with some investors hoping for a smaller rise next month on the back of signs that inflation may be close to peaking across the continent. Prices charged by German industrial groups fell 4.2 per cent in October, the first decline in two years.
However, Schnabel said “the largest risk for central banks remains a policy that is falsely calibrated on the assumption of a fast decline in inflation, and hence on an underestimation of inflation persistence”.
European stocks were nonetheless benefiting from US investors “returning to Europe” as the dollar continued to slide from its late September high, said Emmanuel Cau, European equity strategist at Barclays. “US domiciled funds’ buying of Europe month to date is the highest since the [war in Ukraine] began in February.”
Asian equities, meanwhile, sank as pessimism over rising Covid-19 cases in China damped investor sentiment. Hong Kong’s Hang Seng index dropped 0.5 per cent, trimming earlier losses, while Japan’s Topix finished flat and South Korea’s Kospi shed 0.4 per cent. China’s CSI 300 gained 0.5 per cent after early losses.
Oil prices gave up their morning gains to trade flat, with Brent crude, the international marker, steady at $85.37 per barrel.
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