Stocks rise as earnings reports temper rate hike bets

Stock markets rose on Tuesday and government debt yields rose as traders balanced optimism about corporate earnings with the prospect of an interest rate hike by central banks.

Wall Street’s S&P 500 Index closed 0.7% higher in New York; the technology-focused Nasdaq Composite also ended the day up 0.7%. The Stoxx Europe 600 index closed up 0.3%.

Consumer goods leader Procter & Gamble warned of rising input costs earlier today, but maintained its full-year profit forecast. P&G shares fell 1.2 percent to $ 140.66.

Signs that companies were managing inflationary pressures would prompt traders to top up their stocks, analysts said, especially as bond markets remained vulnerable to signals of monetary tightening from central banks.

“There is a dispersion among central banks on the pace of monetary tightening,” said Salman Baig, multi-asset investment manager at Unigestion. “But the markets are anticipating rate hikes in the United States. This makes stocks more resilient because there is less reason to be in bonds. ”

The FTSE All-World stock index, which fell more than 4% in September, has recovered almost all of those losses so far this month.

In bond markets, the yield on the 10-year US Treasury bill – which moves inversely to its price – hit 1.64%, its highest trading level since May.

The minutes from the last Federal Reserve meeting suggested that the US central bank could start cutting its $ 120 billion a month in coronavirus bond purchases as early as next month. Financial markets are also anticipating the central bank’s first pandemic-era rate hike – which brought borrowing costs to zero at the height of the coronavirus crisis in March 2020 – for September of next year.

Supply chain bottlenecks and rising energy, food and rent costs have kept headline consumer price inflation in the United States above 5% for four months . But in the minutes of their last meeting, Fed policymakers continued to label the surge as “transient.”

Andrew Bailey, Governor of the Bank of England, took a different tone, saying this weekend that the UK central bank “should act” on price pressures. The latest UK inflation data will be released on Wednesday.

“The BoE takes a much stronger stance than many other central banks,” said Salman Ahmed, global macro manager at Fidelity International.

“If that thought is correct, we don’t know, it could be that they are killing the [post-pandemic] economic recovery, ”he added, if rising debt costs combined with soaring commodity prices affect consumer spending.

The UK 10-year government yield last rose 0.03 percentage point to 1.16%.

Meanwhile, the dollar fell against major currencies, with traders betting on central banks outside the United States by raising interest rates before the Fed increased borrowing costs.

The dollar index, which measures the greenback against six peers, fell to its lowest level since late September, but retraced some of those losses mid-afternoon in New York City. It was down 0.2 percent for the last time.

The pound sterling rose 0.5% against the dollar to $ 1.38 as investors bet more on the BoE’s rate hike by Christmas to fight inflation.

Ahmed said the dollar would remain the “antidote to the fragility” of stock and bond markets, as investors continued to fear inflation could cause an economic slowdown.

A Bank of America survey of 430 fund managers found their cash holdings topped an annual high of 4.7% of assets in October, as participants’ global growth expectations turned negative for the first time since. April of last year.

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