European stocks and US futures continued to push higher on Thursday after the Federal Reserve kicked off a series of central bank policy meetings this week by delivering its smallest rate rise since March.
Stocks have climbed and bond yields are down this year on rising optimism of stronger global growth and signs of cooling inflation, with markets further buoyed on Wednesday by comments from Fed chair Jay Powell that investors viewed as dovish.
“Reading between the lines of his remarks, we see the first baby steps towards a looming pause in rate hikes following the expected March hike, and ultimately a pivot to rate cuts later this year,” said analysts at Bank of America.
The region-wide Stoxx Europe 600, up 6 per cent over the past month, added 0.7 per cent, while London’s FTSE gained 0.6 per cent ahead of policy announcements from the European Central Bank and the Bank of England later in the day. Both are expected to lift rates by half a percentage point to their highest levels since autumn 2008.
Contracts tracking Wall Street’s benchmark S&P 500 rose 0.4 per cent and those tracking the tech-heavy Nasdaq 100 added 1.3 per cent ahead of the New York open. Meta surged 20 per cent in pre-market trading on stronger than expected fourth-quarter revenue and a promise from chief executive Mark Zuckerberg that 2023 would be “the year of efficiency”.
The S&P 500 rose to its highest level since August on Wednesday after the Fed opted to raise rates by a quarter percentage point, ending a run of half and three-quarter-point moves and taking the federal funds rate to between 4.5 and 4.75 per cent. .
Traders snapped up government bonds, which have rallied so far this year, taking the yield on the benchmark 10-year Treasury down to 3.41 per cent by Thursday morning. Bond yields fall when prices rise.
The dollar index, which tracks the US currency against a basket of six currencies, was flat having slipped more than a tenth in the past three months as the pace of interest rate rises has slowed.
Markets expect the Fed to replicate Wednesday’s move when officials meet in March and Fed chair Jay Powell gave investors little reason to think otherwise during a question-and-answer session with journalists late in the day, maintaining that “ongoing increases in the target range will. be appropriate”.
Powell acknowledged that “for the first time the disinflationary process has started” in consumer goods, which markets interpreted as dovish, but he added that disinflation had yet to set in across the core services ex-housing part of the price index. Despite a slowdown in economic growth, the labor market remains “extremely tight”, Powell said.
Unlike the Fed, however, markets expect March’s rate rise to be the central bank’s last and are pricing in the possibility of rate cuts in late 2023. “We’ll just have to see,” Powell said.
Barclays analysts said Powell’s press conference “sent mixed messages, reiterating that the committee’s work is not done, but showing reluctance to lean against easing financial conditions”.
In Asia, Hong Kong’s Hang Seng index dipped 0.5 per cent, China’s CSI 300 slipped 0.3 per cent and Japan’s Nikkei rose 0.2 per cent.