Global stocks rally on lower bond yields
- By Reuters -
- Jan 16, 2025
Stocks surged on Thursday, extending momentum from the previous session when data showed an easing in core US inflation that raised expectations for Federal Reserve cuts and sent global bond yields lower.
Strong results from blue-chip companies across the world added fuel to the equities rally, and supported risk sentiment across a range of asset classes.
Richemont, the owner of Cartier jewellery, jumped 17%, putting it on track for its best day in 17 years, after its results exceeded analyst expectations, driving up the wider European luxury sector.
That all left Europe’s STOXX 600 up 0.65% at its highest in a month and within 2% of September’s record.
Asia ex-Japan shares gained 1.33%, while on Wall Street on Wednesday all three major indexes registered their biggest daily percentage gains since Nov. 6 – the day after the U.S. presidential election.
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INFLATION RELIEF AND STOCKS
Earnings aside, the rally in risk assets stemmed from Wednesday’s benign U.S. inflation report that showed the consumer price index rose in line with expectations at an annual rate of 2.9% in December, while core inflation, which excludes food and energy prices, rose by 3.2%, below forecasts for 3.3%.
The inflation report led traders to price in a 50% chance of a second 25 basis point Fed rate cut this year. Before the data, expectations had mounted the Fed might not cut again this year.
Markets gave the data greater credence because other releases painted a similar picture. Numbers released on Tuesday showed U.S. producer prices had increased moderately in December. Wednesday’s softer British inflation print also offered support.
“Wherever you were around the world yesterday, I’m sure you could hear the huge collective sigh of relief from financial markets as downside inflation surprises from the U.S. and the U.K. allowed us to step back from the recent one-way trade on inflation and bond yields,” said Jim Reid global head of macro research at Deutsche Bank in a morning note to clients.
The benchmark 10-year Treasury yield fell 13.5 basis points in the aftermath of the data, its biggest daily fall since mid November. It was steady on Thursday at 4.66%, having nudged above 4.8% at the start of the week.
Moves were even larger in Britain, whose government bonds have been some of the biggest victims of the recent global selloff. The 10-year gilt yield fell 15 bps Wednesday, its most since late 2023.
YEN AND POUND
The data also offered some support to other currencies against the dollar.
On Thursday, Japan’s yen hit its strongest in nearly a month on the dollar and euro after comments from Governor Kazuo Ueda prompted traders to price in a more than 70% chance the Bank of Japan will raise interest rates next week.
The dollar was last down 0.4% on the Japanese currency at 155.8 yen. The euro eased by a similar amount at 160.
Other currencies were quiet, but the pound dropped 0.3% on both the dollar and euro after British GDP rose just 0.1% in December, below expectations. ,
In energy markets, Brent crude futures slipped 0.2% to $81.88 a barrel, as investors processed the complex ceasefire accord between Israel and militant group Hamas.
Spot gold hit a one month high of $2,704.9 per ounce after the shift in interest rate expectations.