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World shares consolidated a 6-week high on Thursday as investors scented a possible slowdown in the pace of US rate hikes that had comforted bond markets and sent the dollar to a three-week low on the yen.
Europe made an upbeat start as record-busting $11.5 billion profits from oil giant Shell sent commodities shares soaring, although momentum quickly faded ahead of what was expected to be some shaky euro zone confidence data later.
The US Federal Reserve had surprised no one by lifting rates 75 basis points (bps) to 2.25 per cent-2.50 per cent on Wednesday, but did alter its statement to cite some softening in recent data.
Fed Chair Jerome Powell sounded suitably hawkish on curbing inflation in his news conference, but also dropped guidance on the size of the next rate rise and noted that “at some point” it would be appropriate to slow down.
“There is pretty convincing risk-on reaction from the market to the Fed, but whether that can continue remains to be seen,” said Abrdn investment director James Athey.
The reality was, he added, that if the US central bank does slow its rate hikes it would only be because the economy was struggling, which would not be a good sign.
“The bias is we don’t see much more on the upside (in share markets) given that there is recessionary outlook,” Athey said. “Everybody is somewhere on the spectrum.”
The futures market still has 100 bps of further tightening priced in by year-end, but also implies around 50 bps of rate cuts over 2023.
Just the hint of a less aggressive Fed though had been enough to send MSCI’s 47-country index of world shares up 0.4 per cent, putting it firmly on course for its first back-to-back run of weekly gains since March.
With Europe now facing a gas crisis, and increasingly likely a recession according to economists, the STOXX 600 stalled after rising as much as 0.5 per cent. The FTSE and DAX both slipped into the red although Italy’s FTSE MIB remained 1 per cent higher. [.EU]
In Asia, Japan’s Nikkei had added 0.4 per cent despite a jump from the yen. South Korea climbed 0.8 per cent although Chinese blue chips lost traction late on having been brightened earlier in the session by reports Beijing was planning more support for a hard-hit property sector.
Wall Street also looked set to take a post-Fed breather, with S&P 500 futures 0.2 per cent lower and Nasdaq futures down 0.5 per cent, after the tech-heavy index had enjoyed its biggest daily gain since April 2020 on Wednesday.
Yet shares of several major US tech companies, including Meta Platforms, slid after hours as poor quarterly results and outlooks underscored recession fears.
Apple eyed
Traders will be feverishly awaiting results from iPhone maker Apple and Amazon later following torrid runs for their stock prices this year.
Attention will also be on US gross domestic product (GDP)data for the second quarter where another negative reading would meet the technical definition of a recession, though the United States has its own method of deciding those.
Median forecasts are for growth of 0.5 per cent, but the closely watched Atlanta Fed estimate of GDP is for a fall of 1.2 per cent. In bond markets, two-year Treasury yields steadied at 3.00 per cent after falling 6 bps in the wake of the Fed meeting.
Although the US yield curve steepened slightly, most of it remained inverted in a sign investors believe policy tightening will lead to an economic downturn and lower inflation. Europe’s benchmark 10-year German bund yield climbed 5 basis points in morning trading which left it on the cusp of 1 per cent again.
“While central banks are still on track to continue tightening this year, it is increasingly likely that the most rapid pace of rate hikes may be behind us,” analysts at JPMorgan said in a note.
