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Wednesday, October 4, 2023

Fed peak bets up, stocks surge, dollar slips

Global equities surged, and the dollar declined as investors bet that the Federal Reserve has completed its 16-month long policy-tightening cycle. The Stoxx Europe 600 index rose 1%, with almost all sectors gaining, and US futures indicated a strong session on Wall Street, with contracts on the Nasdaq 100 up 1.1%.

The Fed’s recent rate hike to a 22-year high has led many investors to believe that further rate increases are unlikely, as higher borrowing costs are already curbing price pressures. Similarly, the European Central Bank’s predicted rate rise could be one of its last moves this cycle.

The conviction that US and European rates have peaked coincides with a robust earnings season, with more than half of all companies beating analyst estimates.

Individual companies like BNP Paribas SA, Nestle SA, and Carrefour SA rallied after topping expectations. Chipmakers also gained ground, particularly Micron Technology, which highlighted its high-bandwidth memory products.

The dollar continued to decline for the third consecutive day, as support from a hawkish Fed wanes, and relative yield differentials move against the greenback. Signs of a soft landing for the US economy have emerged, contributing to the Dow Jones Industrial Average’s 13th straight session of gains, the longest winning streak since 1987.

Asian shares also rallied, with Hong Kong’s Hang Seng Index up 1.5% and Tokyo’s benchmark rising 0.7%. Chinese electric-vehicle maker XPeng Inc soared 30% following news of a $700 million investment from Volkswagen AG.

Investors now await the Bank of Japan’s policy decision on Friday, with the yen strengthening for a fourth day as traders anticipate possible guidance on when the central bank may shift away from its current policies.

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