Markets surge on interest rate hopes

Asian and European stocks rallied Tuesday and the dollar dipped as weak US data sparked hopes the Federal Reserve could ease its interest-rate hiking plans.

Frankfurt and Paris equities soared more than three per cent in value after similar stellar gains in Tokyo, while London won two per cent.

Weaker-than-expected manufacturing data from the US was taken as a signal that rising interest rates may be having some effect on cooling demand for goods, said Interactive Investor analyst Richard Hunter.

This in turn led to hopes of a Federal Reserve pivot, even though the spectre of inflation remains firmly at the top of their stated to-do list.

The Fed and other central banks across the world have raised interest rates in efforts to tame runaway inflation, but the monetary tightening has raised fears that it could plunge countries into recession.

Wall Street had enjoyed a bumper start to the fourth quarter on Monday after data showed US manufacturing growth slowed more than expected in September to its weakest in more than two years. The Institute for Supply Management said its manufacturing index dropped 1.9 points to 50.9 per cent, just barely above the 50-per cent threshold indicating expansion, as the prices index fell to the lowest in more than two years.

Eurozone manufacturing survey data out Monday showed a contraction on the back of the region’s ongoing energy crisis.

The turnaround in risk appetite appears to have been driven by another deterioration in PMI surveys as traders speculate that such weakness could be a precursor to slower monetary tightening, noted OANDA market analyst
Craig Erlam. Asian markets built on the Wall Street surge. Tokyo and Seoul were among the leaders, despite news that North Korea had fired a missile over Japan for the first time
since 2017.

Sydney soared 3.8 per cent after the Reserve Bank of Australia lifted interest rates by less than expected.

Hong Kong and Shanghai were closed for holidays.

Investors will focus later this week on Friday’s all-important US jobs figures for the latest reading on the health of the world’s biggest economy.

Sterling extends gains

Oil also continued to rise on expectations OPEC and other major producers will slash output this week, having become spooked by a plunge in the commodity on recession fears.

The 13 members of the Organization of the Petroleum Exporting Countries (OPEC), led by Riyadh, and their 10 allies headed by Moscow will hold Wednesday their first in-person meeting at the group’s headquarters in Vienna since March 2020.