Global stocks advanced on Wednesday along with U.S. Treasury yields, as investors digested minutes from the Federal Reserve’s September meeting and awaited inflation data for clues on the central bank’s interest rate path.
Minutes from the meeting showed a “substantial majority” of U.S. Federal Reserve officials supported beginning an era of easier monetary policy with an outsized half-point rate cut, but there appeared even broader agreement that the initial move would not commit the Fed to any particular pace of rate reductions in the future.
U.S. stocks held gains after the minutes, but the advance on the session was curbed in part by a 2.5% fall in Google-parent Alphabet’s (GOOG) shares after the U.S. Department of Justice said it may ask a judge to force the company to divest parts of its business.
The Dow Jones Industrial Average rose 346.47 points, or 0.82%, to 42,426.84, the S&P 500 rose 25.84 points, or 0.45%, to 5,776.97 and the Nasdaq Composite rose 57.66 points, or 0.32%, to 18,240.58.
Investors have dialled back expectations for aggressive rate cuts by the Fed after last week’s strong U.S. jobs report. They will also monitor inflation data on Thursday in the form of the consumer price index (CPI) for insight into the Fed’s rate path, while the corporate earnings season kicks off with bank earnings on Friday.
“A lot is going on in the market right now,” said Anthony Saglimbene, chief market strategist at Ameriprise Financial in Troy, Michigan.
“The macro backdrop is solid, there’s likely to be some churn around interest rate cut expectations between now and the end of the year. Really the key for the market over the next couple of weeks is the earnings season.”
After completely pricing in a cut of at least 25 bps last week, with a 35.2% chance of a second consecutive cut of 50 bps, the market is betting on a 79.4% chance of a 25 basis point cut at the Fed’s November meeting, and a 20.6% chance it will hold rates steady, CME’s FedWatch Tool showed. The expectations for a cut in November decreased slightly after the Fed minutes.
Dallas Federal Reserve Bank President Lorie Logan said she supported last month’s outsized rate cut but wants smaller reductions ahead, given “still real” upside risks to inflation and “meaningful uncertainties” over the economic outlook.
MSCI’s gauge of stocks across the globe rose 2.12 points, or 0.25%, to 846.90 and was on track for a second straight session of gains. In Europe, the STOXX 600 index closed up 0.66%, buoyed in part by automakers as the index bounced back from a decline in the prior session.
China’s stock rally short-circuited, with both the Shanghai Composite index and CSI300 index suffering their biggest one-day percentage drops since February 2020.
China’s main information office said the finance ministry will detail plans on fiscal stimulus to boost the economy at a news conference on Saturday.
U.S. yields were modestly higher in the wake of Logan’s comments and the Fed minutes, as well as an auction of 10-year notes. The yield on benchmark U.S. 10-year notes gained 3.4 basis points to 4.069% while the 2-year note yield, which typically moves in step with interest rate expectations, rose 2.8 basis points to 4.007%.
The 10-year yield topped 4% for the first time in two months earlier in the week.
The dollar index, which measures the greenback against a basket of currencies, climbed 0.39% to 102.89, with the euro down 0.38% at $1.0938.
Against the Japanese yen, the dollar strengthened 0.73% to 149.27. Sterling weakened 0.28% to $1.3067.
The New Zealand dollar weakened 1.35% versus the greenback to $0.6055 after the central bank cut interest rates by 50 basis points and left the door open to more.
Crude prices slumped for a second straight session, on rising U.S. crude inventories, while the risk of Iranian supply disruptions caused by the Middle East conflict and Hurricane Milton in the United States curbed price declines.
U.S. crude fell 0.38% to $73.29 a barrel and Brent fell to $76.59 per barrel, down 0.76% on the day.
