Global shares reached their highest levels in over a year on Wednesday, buoyed by strong earnings and a decline in the dollar. However, cautious trading prevailed due to concerns surrounding U.S. regional banks and skepticism regarding China’s efforts to stabilize its markets.
Bonds experienced a brief reprieve after a sell-off earlier in the week, prompted by comments from Federal Reserve officials that did little to alter expectations for monetary policy. The MSCI All-World index climbed 0.1 percent early Wednesday, reaching its peak since mid-January 2023. Notably, Chinese blue-chip stocks led the rally, surging nearly 5 percent in just two trading days.
To foster stability, Chinese regulators announced further restrictions on short selling, while state investors revealed plans to expand their stock purchasing activities. Additionally, it was reported that President Xi Jinping would discuss the stock market with financial regulators, though details of the conversation were yet to be confirmed.
Markets have shown that their bar to turning more optimistic around the economy has been high, commented Galvin Chia, emerging markets strategist at NatWest. There is also considerable uncertainty around what the government’s longer-term approach is towards markets.
In Europe, stocks remained steady on Wednesday, with consumer discretionaries like LVMH offsetting declines in pharmaceutical shares. S&P 500 futures and Nasdaq futures dipped 0.1 percent, while notable companies reporting their earnings included Uber, Walt Disney, and PayPal.
The banking sector continued to be a cause for concern as Moody’s downgraded New York Community Bancorp to junk status, citing funding and liquidity pressures. The bank’s stock plummeted by 22 percent, bringing its total decline to 60 percent since reporting unexpected losses last week.
The Federal Reserve’s rate cuts remained uncertain as its officials, including Loretta Mester and Neel Kashkari, acknowledged progress on inflation but emphasized that further work was necessary before implementing any policy adjustments. Fed Philadelphia President Patrick Harker expressed optimism about achieving an economic soft landing and pointed out the real progress made on inflation.
The events of the last few days have seen markets try and absorb the fact that rate cuts might have to wait until much later in the year, and what any delay means for asset prices and valuations, explained Michael Hewson, chief market strategist at CMC Markets.
Federal Chair Jerome Powell, in an interview over the weekend, conveyed the Fed’s cautious stance on the timing of rate cuts, emphasizing the need for prudence.
The probability of a U.S. rate cut in May decreased to 39 percent, after being considered highly likely just a week ago. Futures indicate an expectation of approximately 122 basis points of easing for the entirety of 2024, down from 145 basis points last week.
Following the drop in yields, the U.S. dollar weakened to 147.85 yen, moving away from the ten-week high of 148.90. The euro slightly rose by 0.1 percent to $1.0767. Meanwhile, gold stabilized around $2,035 per ounce after falling to $2,013.70 earlier in the week.
Oil prices found support after the U.S. Energy Department revised its assessment, now predicting a growth of 170,000 barrels per day (bpd) in U.S. output for 2024, down from the previous estimate of 290,000 bpd.
As global markets flirt with new highs and uncertainties persist, investors eagerly await further developments while keeping a watchful eye on earnings reports and monetary policy updates.
