Stocks rise on dovish Fed remarks, China stimulus

BLOOMBERG

European shares rallied after dovish comments by Federal Reserve officials and the prospect of more economic stimulus by China brought some risk appetite back to markets as investors continue to evaluate the potential impact of the Israel-Hamas conflict.
Treasuries jumped, catching up with the global government bond rally, when cash trading in the US was closed.
The yield on the policy-sensitive two-year Treasury dropped by the most since the end of August, while the benchmark 10-year had its best day since March. US equity futures rose and the dollar extended its losing streak to a fifth day.
The Stoxx Europe 600 index climbed more than 1%, heading for its best day in a month, with all industry sectors in the green. Miners led the advance after Bloomberg reported that China is preparing to unleash a new round of stimulus measures which may support metal p[rices. Anglo American Plc advanced more than 5%, while Glencore Plc and Rio Tinto Plc added more than 3% each.
At the end of last week, traders had boosted bets on another Fed hike this after US employment unexpectedly surged in September. That narrative switched, however, as central bank officials tamped down the speculation. Fed Vice Chair Philip Jefferson said officials could “proceed carefully” following the recent rise in Treasury yields, and Fed Bank of Dallas President Lorie Logan said the surge in long-term rates may mean less need for further tightening. Another slate of Fed speakers were expected to the picture.
“The latest comments from Fed speakers have had a clear risk-on influence on the market,” said Benjamin Melman, global chief investment officer at Edmond de Rothschild Asset Management. “There’s been a clear change of tone.”
China is considering raising its budget deficit for 2023  to help the economy meet the government’s annual growth target, Bloomberg reported. Policymakers are weighing the issuance of at least 1 trillion yuan ($137 billion) of additional sovereign debt for spending on infrastructure such as water conservancy projects.
An escalation of tensions in the Middle East, however, remains a risk for markets.
The latest conflict comes at a time of ongoing geopolitical concerns, with markets also facing a period of moderating global economic growth, according to Solita Marcelli, chief investment officer Americas at UBS Global Wealth Management.
“Against this backdrop, we continue to prefer fixed income to equities,” Marcelli said. “We see a better risk-reward profile for fixed income, and we recommend investors consider buying high-quality bonds in the five- to 10-year maturity range.
We foresee further cooling in inflation and slower global growth.” Another risk for US stocks may come from fiscal policy constraints at a time when the Fed is still fighting high inflation, according to Morgan Stanley’s Michael Wilson.
The strategist — among the most prominent bearish voices on Wall Street — said while the US government avoided a shutdown, “the lack of a resilient long-term structure that supports fiscal discipline” could have an impact on financial markets.