NEW YORK, Jan 10 — World stocks rallied yesterday to their highest levels since mid-December after China reopened its borders while benchmark Treasury yields drifted lower as investors scaled back expectations for further rate hikes by the Federal Reserve.
The gains were broad across global equity markets, with Europe’s STOXX 600 near a one-month high and emerging market stocks up 2.4 per cent on the day.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose to its highest in more than six months after China reopened its borders, bolstering the outlook for the global economy.
Wall Street’s benchmark indexes gave up broad earlier gains to finish mixed ahead of an expected speech by Fed Chair Jerome Powell today and inflation data on Thursday.
“What happens to claims and the labour market will also help determine whether the forthcoming ‘landing’ is soft or hard,” said Alex Pelle, US economist at Mizuho Securities.
A soft landing is the ideal Fed policy goal after raising interest rates, a situation in which inflation slows but there are not enough job losses to trigger a recession.
Global equities surged on Friday following US jobs data that showed a jump in the workforce and easing wage growth. This, along with data pointing to a US service sector contraction, was interpreted by investors as an indication the Fed could become less hawkish.
On Wall Street, the Dow Jones Industrial Average fell 112.96 points, or 0.34 per cent, to 33,517.65, the S&P 500 lost 2.99 points, or 0.08 per cent, to 3,892.09 and the Nasdaq Composite added 66.36 points, or 0.63 per cent, to 10,635.65.
MSCI’s gauge of stocks across the globe gained 0.71 per cent after being up as much as 1.5 per cent earlier in the day.
Money markets were pricing in a 25 per cent chance of a half-point US rate hike in February, down from around 50 per cent a month ago.
Investors will look to Thursday’s CPI data for further clues as to the Fed’s next move.
The US dollar index was down around 0.7 per cent, near its lowest in seven months, after it dropped 1.2 per cent on Friday.
In bond markets, European government bond yields rose in a reversal after the previous weeks’ sharp falls. Germany’s benchmark 10-year government bond yield was up 4 basis points at 2.252 per cent.
The yield on 10-year Treasury notes was down 4.1 basis points to 3.530 per cent. Bond yields move in the opposite direction of prices.
“Investors are operating under the assumption that once the Fed pauses, the only next possible outcome would be a cut — and if futures pricing is to be believed, the market sees the first cuts by year-end,” said Ian Lyngen, head of US rates strategy at BMO Capital Markets.
US crude recently rose 1.41 per cent to US$74.81 per barrel and Brent was at US$79.73, up 1.48 per cent on the day. — Reuters
