Global stocks reach two-year high, dollar weakens

Global stocks achieved their highest levels in over two years on Wednesday, buoyed by strong earnings and a weakening dollar, despite concerns over U.S. regional banks and skepticism about China's market support measures, leading to cautious trading.

Publication: 07.02.2024 - 13:59
Global stocks reach two-year high, dollar weakens
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Bonds saw a slight recovery from the aggressive sell-off earlier this week, unaffected by Federal Reserve officials' comments, which left monetary policy expectations unchanged.

The MSCI All-World Index climbed 0.1% early Wednesday, reaching its peak since mid-January 2022, with Chinese blue chips leading the charge, posting nearly a 5% gain in the last two days. China's recent regulatory measures against short selling and expanded stock purchase plans by state investors have sparked market interest, although a reported meeting between President Xi Jinping and financial regulators remains unconfirmed.

"Markets have been hesitant to adopt a more optimistic outlook on the economy," noted Galvin Chia, an emerging markets strategist at NatWest, pointing to the uncertainty over the Chinese government's long-term market strategy.

In Europe, stocks remained mostly unchanged in a day heavy with earnings reports, as gains in consumer discretionary sectors, highlighted by companies like LVMH, were offset by declines in pharmaceutical shares.

U.S. S&P 500 and Nasdaq futures dropped slightly by 0.1%. Among those reporting earnings on Wednesday are major companies such as Uber, Walt Disney, and PayPal. The banking sector's struggles continued as Moody's downgraded New York Community Bancorp to junk status due to funding and liquidity pressures, resulting in a significant stock price drop.

Federal Reserve officials, including Loretta Mester and Neel Kashkari, acknowledged progress on inflation but emphasized the need for further action before policy easing. Patrick Harker of the Federal Reserve Bank of Philadelphia was more optimistic about achieving a soft economic landing, citing "real progress" on inflation.

Market strategists, like CMC Markets' Michael Hewson, observed that recent events have tempered expectations for immediate rate cuts, awaiting further cues from Fed officials. Fed Chair Jerome Powell's recent remarks suggest a cautious approach to rate cuts, with market expectations for a May rate cut now significantly reduced.

Treasuries stabilized, with the 10-year note yield holding steady, leading to a softer U.S. dollar against major currencies. The dollar's decline supported a slight increase in oil prices, despite the U.S. Energy Department's revised lower growth forecast for U.S. oil output in 2024.

As markets navigate these developments, investors remain alert to signals from Fed officials and global economic indicators, shaping investment strategies in a dynamically changing landscape.

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