LONDON (Reuters) – With the turn of the tide on Wall Street, all eyes are now on the Eurozone. Global shares have scaled a peak not seen in the last 15 months, while the euro is riding high. It’s as if the markets are catching their breath after the long-expected hike in U.S. interest rates, all set to brace for the European Central Bank’s (ECB) upcoming move.
It’s like seeing a play on repeat – we’ve all sensed the big, bold surge in borrowing costs around the world coming to a head. The MSCI ACWI index, tracking stocks across 47 countries, has rocketed to its highest point since April of the year before, notching a hefty 30% increase since November.
Now, the countdown is on for the ECB’s move at 1215 GMT. Much like the Fed, it’s predicted to bump up by another quarter-point as it nears the close of its tightening spree. Yet there’s a twist in the plot with the Bank of Japan’s meeting on Friday – whispers are growing louder that they might start making moves too.
Ahead of the ECB meeting, European markets are in the green. The STOXX 600 index is up by 1%, Amsterdam’s market is at a high not seen since the dawn of 2022, and the euro has risen by 0.4%.
Over on Wall Street, Nasdaq futures are on the rise, pumped up by a 6.8% boost in Meta Platforms in after-hours trading. The parent company of Facebook wowed with a strong surge in advertising revenue, trouncing Wall Street’s expectations.
Asian markets are not to be left behind. MSCI’s broadest index of Asia-Pacific shares outside Japan has climbed 1% to a five-month high. The Japanese Nikkei too is enjoying a 0.7% uptick, its highest in three weeks.
In Hong Kong, the Hang Seng Index is basking in the glow of a nearly 5% bump in Chinese property stocks, buoyed by hopes for more support to the beleaguered sector following a top Politburo meeting.
Stateside, the Federal Reserve stuck to the script, rolling out the predicted quarter-point rate hike. In a refreshing twist, Chair Jerome Powell stated that the Fed isn’t expecting a recession.
Invesco’s Global Market Strategist, David Chao, opined, “Even with the possibility of an extra rate hike on the horizon, it seems we’ve hit a high point. The Fed tightening saga is over. We’re looking at a rising global appetite for risk as markets readjust their recession fears. We’re keenly awaiting the economic recovery that could kick off by year-end.”
Odds are currently at a slim 20% for a surprise quarter-point increase come September. However, markets are predicting substantial rate cuts totaling 125 basis points by next year’s end.
As for the ECB, expectations are high for a quarter-point rate hike. However, slow inflation could crank up the pressure on policymakers to continue the course or maintain higher rates for longer.
Analysts like Jefferies economist Mohit Kumar speculate, “We’re all thinking a 25 basis point hike is on the cards. But what’s really crucial is what comes next… The market is betting on a peak rate of 3.96%. We think a 50/50 chance of another hike is more realistic.”
Friday will see another key event – the Bank of Japan’s meeting, amidst rumors of changes to its ultra-loose ‘yield curve control’ policy.
Most expect no change yet, including JPMorgan, who see the key 10-year band widening to +/- 100 basis points. The yen flirted with 139.35 per dollar but settled around the 140 mark.
The U.S. dollar is feeling the squeeze in Europe, down 0.2% against a basket of major currencies. Meanwhile, the risk-sensitive Australian and New Zealand dollars are both enjoying a boost of up to 0.8%.
In the bond market, euro zone government bond yields – a key indicator of borrowing costs – have seen a slight drop as we near the ECB meeting.
Across the pond, Treasury yields are holding steady. The 10-year U.S. Treasury note yield is at 3.86%, down 6 basis points, while the two-year rate barely budged at 4.8329%, easing 7 basis points.
In other news, oil prices are on the rise. Brent crude futures are up 0.6% at $83.41 per barrel and U.S. West Texas Intermediate crude futures have increased 0.85% to $79.46. Gold prices too have enjoyed a modest increase of 0.2% to $1,976.18 per ounce.
