American stock indices ended trading higher on Monday, marking their third consecutive positive session. Investors are once again raising hopes that the Federal Reserve may cut interest rates this year.
Global stock indicators also rose amid optimism about a likely rate cut. At the same time, the Japanese yen weakened against the dollar after a sharp rise last week associated with the proposed currency intervention.
Expectations for US central bank rate cuts fell during the year due to more persistent inflation. Some investors began to fear that a rate cut would not materialize at all, sending markets tumbling in April.
However, Friday's data showed that U.S. job growth slowed more than expected in April. That eased pressure on the Federal Reserve, making it less likely that rates would remain high for long. Combined with an unexpectedly positive corporate earnings season, this has given investors fresh momentum in recent sessions.
Last week, the Fed signaled it was willing to consider cutting interest rates but wanted to make sure inflation was falling sustainably before making that decision. Fed officials repeated that statement Monday.
Richmond Fed President Thomas Barkin said the current level of interest rates should slow the economy enough to bring inflation back to the central bank's 2% target. However, a strong labor market provides time to wait.
Traders now expect the Fed to cut rates by 46 basis points by the end of 2024, with the first cut forecast in September or November, according to rate probability app LSEG.
Stocks on both sides of the Atlantic, as well as in Asia, rose. The US labor market report on Friday was softer than expected, leading to renewed bets that the Federal Reserve will ease monetary policy as early as September.
The dollar index, which measures the US currency's exchange rate against six major trading partners, fell for the fourth session in a row. It comes after Friday's data showed the weakest job growth since October, allaying fears that the Fed could raise rates again.
However, the outlook for inflation remains uncertain as the market hopes interest rates will be restrictive enough to slow the economy and reduce the rate of price increases, Conger said.
The Dow Jones Industrial Average rose 176.59 points, or 0.46%, to 38,852.27. The S&P 500 added 52.95 points, or 1.03%, to 5,180.74. The Nasdaq Composite Index rose 192.92 points, or 1.19%, to 16,349.25.
Most sectors of the S&P 500 index ended trading on a positive note. The energy sector was one of the top gainers, thanks in part to U.S. natural gas futures hitting their highest level in 14 weeks.
Chipmaker shares were broadly higher on Monday, including Arm Holdings, which added 5.2% ahead of this week's earnings release.
Micron Technology (MU.O) shares rose 4.7% after Baird upgraded the stock. Advanced Micro Devices (AMD.O) and Super Micro Computer (SMCI.O) also rose 3.4% and 6.1%, respectively, regaining ground lost after last week's disappointing earnings.
Paramount Global (PARA.O) shares rose 3.1% after exclusive talks with Skydance Media ended without a deal, allowing a special committee to consider offers from other bidders.
Tyson Foods (TSN.N) shares fell 5.7% despite beating Wall Street's second-quarter profit expectations as the company warned of pressure on consumers from persistent inflation.
At the same time, shares of Spirit Airlines (SAVE.N) fell 9.7% to a record low after weak guidance for second-quarter earnings.
The S&P 500 posted 29 new 52-week highs and 2 new lows, while the Nasdaq recorded 150 new highs and 54 new lows.
In Europe, the cross-regional STOXX 600 index (.STOXX) rose 0.53%. It comes amid signs the European Central Bank is confident of cutting rates as euro zone inflation continues to slow, three ECB policy makers said.
Philip Lane, Gediminas Simkus and Boris Vujicic said inflation and growth data supported their belief that eurozone inflation, which stood at 2.4% in April, would fall to the central bank's 2% target by the middle of next year. of the year.
The MSCI World Shares Index (.MIWD00000PUS) rose 0.50% to close at 1,066.73, its highest level since June 2022. Markets in the UK and Japan were closed due to holidays.
The dollar index was down 0.07% at 105.10, lifting the euro 0.07% to $1.0766.
Goldman Sachs raised its 2024 earnings per share growth forecast for companies in the STOXX 600 Index (.STOXX) to 6% from 3%. The bank noted that a 10% annual rise in Brent oil prices adds about 2.5 percentage points to annual earnings per share growth, and a 10% decline in the euro/dollar exchange rate adds about the same.
Treasury yields fell as investors weighed in on sluggish job creation last week, bolstering views that the U.S. economy is not overheated and will not be hampered by rate cuts.
The yield on the 10-year U.S. Treasury note fell 1.3 basis points to 4.487% from 4.5% late Friday.
Traders now expect the Fed to cut rates by 43 basis points by year-end, with the first cut likely to come in September, according to rate probability app LSEG. Traders have cut their expectations to one cut in recent weeks due to signs of persistent inflation.
Oil prices rose after Saudi Arabia raised June crude oil prices for most regions. In addition, the unlikely prospect of a quick ceasefire in the Gaza Strip has revived fears of renewed fighting between Hamas and Israeli forces.
U.S. crude rose 37 cents to $78.48 a barrel and Brent crude rose 37 cents to $83.33 a barrel.
MSCI's index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) hit its highest level since February 2023, adding 0.66%, while the blue-chip China index (.CSI300) rose 1.5%.
Hong Kong's Hang Seng Index (.HSI) rose 4.7% last week, posting its longest daily winning streak since 2018. The index closed 0.55% higher on Monday.
Elsewhere, traders remain wary of potential yen volatility following past suspicions that Japanese authorities would intervene to stem the currency's sharp decline.
Tokyo is believed to have spent more than 9 trillion yen ($59 billion) to prop up its currency last week, pushing the yen from a 34-year low of 160.245 to about a one-month high of 151.86 per dollar, according to the Bank of Japan. within a week.
On Monday, the yen gave up some of its ground and was last trading at 153.95 per dollar, representing a decline of 0.63%.
Gold prices rose amid a weakening dollar. US gold futures for June delivery rose 0.9% to $2,331.20 an ounce.
Bitcoin added 0.65% to $63,343.00, while Ethereum was down 1.2% to $3,077.3.
