Stocks rallied on Tuesday after dovish comments by Federal Reserve officials and the prospect of more economic stimulus from China brought some risk appetite back to markets as investors continue to evaluate the potential impact of the Israel-Hamas conflict.
(Bloomberg) — Stocks rallied on Tuesday after dovish comments by Federal Reserve officials and the prospect of more economic stimulus from China brought some risk appetite back to markets as investors continue to evaluate the potential impact of the Israel-Hamas conflict.
The Stoxx Europe 600 index jumped 1.6%, heading for its best day this year, with all industry sectors in the green. Miners led gains after Bloomberg reported that China is preparing to unleash a new round of measures to support its economy. Anglo American Plc rose more than 5%, while Glencore Plc, Rio Tinto Plc and ArcelorMittal added more than 3% each. Carmakers advanced the most in four months, led by Volvo Car AB-B.
Futures on the S&P 500 and Nasdaq 100 were little changed after Monday’s solid gains on Wall Street. US-listed Chinese stocks including Alibaba Group Holdings Ltd. and JD.com Inc. were among premarket winners. PepsiCo Inc. climbed as much as 2.7% after raising its profit forecast. Mobile-chip makers Skyworks Solutions Inc. and Qorvo Inc. declined after Citigroup Inc. downgraded the stocks to sell.
Treasuries gained, catching up with Monday’s global government bond rally, when cash trading in the US was closed. Yields rose from session lows, though, as haven demand faltered, with the 10-year about 11 basis points lower on the day after earlier clocking its biggest drop since March. The dollar was steady after four days of declines.
At the end of last week, traders had boosted bets on another Fed hike this year after US employment unexpectedly surged in September. That narrative switched on Monday, however. 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 today may add 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.
“Stimulus is likely to focus on favored tech sectors, which we see as the bright spot amongst Chinese equities,” said John Leiper, chief investment officer at Titan Asset Management. “Global mining stocks remain below key support relative to the MSCI World equity index. While we have seen some signs of life recently, we are looking for a clear move back into the prior channel to signify a more convincing change in sentiment from this source of demand.”
An escalation of tensions in the Middle East, however, remains a risk for markets, with Israel mobilizing its military forces near Gaza, and questions being asked about Iran’s role in the bloody incursion. The latest conflict comes at a time of ongoing geopolitical concerns, with markets also facing a period of moderating global economic growth.
“It is perhaps a little surprising that markets have bounced back as quickly and strongly as they have,” said Craig Erlam, a senior market analyst at Oanda. “Hamas attacks in Israel created uncertainty around the Middle East and investors will no doubt continue to monitor the situation very closely. In light of the Fed commentary on Monday and how it’s contributed to the turnaround in the markets, there’ll be a lot of focus on further appearances today.”
The Fed’s Raphael Bostic, Christopher Waller, Neel Kashkari and Mary Daly are scheduled to speak on Tuesday.
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 narrowly avoided a shutdown last week, “the lack of a resilient long-term structure that supports fiscal discipline” could have an impact on financial markets.
Key events this week:
- US wholesale inventories, Tuesday
- Fed’s Raphael Bostic, Christopher Waller, Neel Kashkari and Mary Daly speak at separate events, Tuesday
- Germany CPI, Wednesday
- NATO defense ministers meeting in Brussels, Wednesday
- Russia Energy Week in Moscow, with officials from OPEC members and others, Wednesday
- US PPI, Wednesday
- Minutes of Fed’s September policy meeting, Wednesday
- Fed’s Michelle Bowman and Raphael Bostic speak at separate events, Wednesday
- Japan machinery orders, PPI, Thursday
- Bank of Japan’s Asahi Noguchi speaks, Thursday
- UK industrial production, Thursday
- US initial jobless claims, CPI, Thursday
- European Central Bank publishes account of September policy meeting, Thursday
- Fed’s Raphael Bostic speaks, Thursday
- China CPI, PPI, trade, Friday
- Eurozone industrial production, Friday
- US University of Michigan consumer sentiment, Friday
- Citigroup, JPMorgan, Wells Fargo, BlackRock results as the quarterly earnings season kicks off, Friday
- G20 finance ministers and central bankers meet as part of IMF gathering, Friday
- ECB President Christine Lagarde, IMF Managing Director Kristalina Georgieva speak on IMF panel, Friday
- Fed’s Patrick Harker speaks, Friday
Some of the main moves in markets:
- S&P 500 futures were little changed as of 8:13 a.m. New York time
- Nasdaq 100 futures were little changed
- Futures on the Dow Jones Industrial Average rose 0.1%
- The Stoxx Europe 600 rose 1.5%
- The MSCI World index rose 0.5%
- The Bloomberg Dollar Spot Index was little changed
- The euro rose 0.1% to $1.0582
- The British pound was little changed at $1.2249
- The Japanese yen fell 0.4% to 149.05 per dollar
- Bitcoin fell 0.2% to $27,521.33
- Ether rose 0.2% to $1,580.55
- The yield on 10-year Treasuries declined 11 basis points to 4.69%
- Germany’s 10-year yield advanced five basis points to 2.82%
- Britain’s 10-year yield advanced four basis points to 4.52%
- West Texas Intermediate crude fell 0.3% to $86.15 a barrel
- Gold futures rose 0.3% to $1,870.20 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Julien Ponthus, Sagarika Jaisinghani and Michael Msika.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.