(Bloomberg) — The dollar plumbed a three-month low on Thursday, while US stock futures paused after hefty index gains fueled by China’s softer stance on Covid and confirmation of a slower US rate-hiking pace from Federal Reserve Chair Jerome Powell.
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S&P 500 contracts were steady, a day after Powell’s comments helped the underlying benchmark close out November with a second month of gains for the first time in more than a year. Those on the tech-heavy Nasdaq 100, which jumped 4.5% on Wednesday, slipped more, with notable declines in US-listed China stocks that had benefited from reports of China’s economic reopening.
Markets elsewhere continued to ride high, with Europe’s Stoxx 600 benchmark up more than 0.5% and a range of regional indexes on the cusp of bull-market territory, having gained almost 20% from lows hit in September. A gauge of global shares touched a three-month high.
Sentiment got an extra boost after China’s top official in charge of the fight against the coronavirus, Vice Premier Sun Chunlan, said the response was entering a new phase, with the omicron variant weakening and more Chinese getting vaccinated. Beijing also indicated some Covid patients could isolate at home.
The buoyant mood knocked the dollar lower against its Group-of-10 counterparts for the third straight day, while Treasury 10-year yields stayed just off two-month lows hit in the wake of Powell’s comments. The yen advanced more than 1% and the euro hit a five-month peak.
“There is no one-way bet any more on dollar strength,” said Sarah Hewin, senior economist at Standard Chartered in London. “We had a good signal about a pivot from Powell, so the market has dialed back its expectations on peak rates.”
Powell’s remarks confirmed expectations the Federal Reserve will raise interest rates 50 basis points this month in a departure from a run of four 75 basis point hikes. Pricing in the swaps market indicates the Fed funds rate will peak below 5% in May. Prior to Powell’s comments, the market anticipated a peak above that level occurring in June.
Focus will likely shift now to how economic growth will fare in coming quarters. US activity gauges have painted a mixed third-quarter picture, with Wednesday’s daa showing job openings down in October, while Friday’s jobs report is currently forecast to show employers added 200,000 workers to payrolls in November.
Later in the day, investors will get to parse the latest US core PCE print — one of the Fed’s favored inflation gauges.
“The market’s wanting to see whether PCE inflation for November aligns with the soft CPI numbers,” analysts at Mizuho wrote, referring to below-forecast inflation data that kicked off the equity rally in November.
There are signs that cooling growth is affecting corporate earnings, especially in the tech sector. Tech shares led losses in US premarket trading, with software maker Salesforce down sharply after an earnings outlook that appeared to reflect a weaker economic environment.
Elsewhere, oil fluctuated after a three-day rally as investors assessed the latest signals that China may be softening its Covid Zero policy and looked ahead to an OPEC+ meeting that will set supply levels for 2023.
Key events this week:
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S&P Global PMIs, Thursday
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US construction spending, consumer income, initial jobless claims, ISM Manufacturing, Thursday
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BOJ’s Haruhiko Kuroda speaks, Thursday
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US unemployment, nonfarm payrolls, Friday
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ECB’s Christine Lagarde speaks, Friday
Some of the main moves in markets:
Inventory
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Futures on the S&P 500 were little changed as of 6:17 am New York time
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Futures on the Nasdaq 100 fell 0.3%
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Futures on the Dow Jones Industrial Average fell 0.2%
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The Stoxx Europe 600 pink 0.8%
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The MSCI World index rose 0.6%
Currencies
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The Bloomberg Dollar Spot Index fell 0.4%
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The euro rose 0.2% to $1.0427
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The British pound rose 0.7% to $1.2143
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The Japanese yen rose 1.2% to 136.41 per dollar
Cryptocurrencies
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Bitcoin fell 0.1% to $17,085.63
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Ether fell 1.2% to $1,280.88
Leaps
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The yield on 10-year Treasuries was little changed at 3.60%
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Germany’s 10-year yield declined 10 basis points to 1.83%
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Britain’s 10-year yield declined seven basis points to 3.10%
Commodities
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West Texas Intermediate crude rose 0.8% to $81.18 a barrel
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Gold futures rose 1.8% to $1,791 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Rita Nazareth and Richard Henderson.
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