Stocks rally as Fed’s interest rate hikes seen near end

BLOOMBERG

Stocks rallied as investors reacted to the possible peak of the Federal Reserve’s historic tightening campaign and processed the latest major company earnings.
Rates-sensitive real estate stocks led the advance in Europe’s Stoxx 600 index, which is set for its longest winning streak since July. US equity futures pointed to an extension of Wednesday’s gains on Wall Street as Asian stocks headed for their biggest gain in almost four months.
Novo Nordisk A/S rose after reporting that third-quarter sales surged amid the frenzy for its blockbuster obesity and diabetes drugs. Shell Plc gained after accelerating the pace of share buybacks as its third-quarter profit rose. Apple Inc headlines the roster of US earnings due later.
While the Fed left the door open to another increase after pausing on Wednesday, officials hinted that a run-up in long-term Treasury yields reduces the impetus to tighten policy further. The Bank of England is likely to keep interest rates at the highest level since 2008 later on Thursday, amid evidence that the UK economy, labor market and inflation are weakening.
“The Fed did not throw in the towel yesterday, but the changes in the speech are in line with a more moderate growth situation,” said Florian Ielpo, head of macro research at Lombard Odier Asset Management. “What transpires from the speech is essentially a first eyebrow raised at the real growth situation, which markets decided to take for a ‘bad news is good news’ message.”
The dollar weakened and Treasuries steadied after Wednesday’s sharp gains.
US yields were already heading lower prior to the Fed decision after the government announced plans to borrow slightly less than expected over the next three months, reassuring investors worried about a deluge of debt issuance. A gauge of US factory activity also came in below expectations, adding to concerns of an economic downturn. In Asia, the yen extended its gains from Wednesday, while the South Korean won led emerging-market currencies higher.
Meanwhile, the rebound in the region’s stocks signalled relief among investors fretting over the expectation of higher-for-longer US rates and hikes continuing into 2024.