WASHINGTON/LONDON (Reuters) – U.S. and European stocks rose on Monday as signs of a slowing U.S. economy raised hopes that the Federal Reserve would slow the pace of interest rate hikes.
The dollar survived another suspected Japanese intervention to rally against the yen.
Dow Jones Industrial Average (.DJI) The Standard & Poor’s Index rose 346.66 points, or 1.12%, to 31,429.22 points (.SPX) It rose 33.7 points, or 0.90%, to 3,786.45, and the Nasdaq Composite (nineteenth) It added 37.59 points, or 0.35%, to 10,897.31 by 12:43 PM EST (1643 GMT).
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The high-tech Nasdaq has recovered after it was earlier hit by a slide in Tesla (TSLA.O) And other huge stocks.
Tesla fell after it cut starting prices for its Model 3 and Model Y cars by up to 9% in China, indicating signs of waning demand in the world’s largest auto market.
A survey showed that US business activity contracted for the fourth consecutive month in October, in the latest evidence of the economy’s weakness in the face of rising inflation and rising interest rates. Read more
“Investors are growing more confident that inflation will come down and that the Fed may rush to pause. The effects of the first few interest rate hikes will start to be felt in the next couple of months and markets are trying to move forward with that,” said Edward Moya, chief market analyst at OANDA at OANDA. New York, “When the Fed Presses the Pause Button.”
“The flash PMIs showed significant weakness in both the services and manufacturing parts of the economy, which is good news for investors who are anticipating a Fed shutdown early next year.”
The dollar advanced as high as 149.70 yen in early trading before hurriedly retreating to 145.28 within minutes in what traders and analysts said appeared to be a response to the Bank of Japan’s activity. The last time was at 148,840.
Japan likely spent 5.4 trillion – 5.5 trillion yen ($36.16 billion – $36.83 billion) in its yen-buying intervention last Friday, according to stock market brokerages in Tokyo. The Japanese authorities have not confirmed whether or not there was an intervention.
Any action to support the yen would run counter to the BoJ’s commitment to controlling the Japanese government’s borrowing costs and could increase pressure on it to back down from the yield curve control at this week’s policy meeting.
Meanwhile, the British pound swayed amid volatility in trade due to news of Boris Johnson’s withdrawal from running for the position of British Prime Minister.
Former finance minister Rishi Sunak will become Britain’s next prime minister after winning the race to lead the Conservative Party, which could reduce some of the political uncertainty surrounding the British pound.
The British pound was last traded at $1.12620.
“Everyday life is tough. My favorite expression all this morning is that this is the time to be a poker player, not a chess player. It’s all about positioning, feelings and understanding who you’re playing against,” said Kate Jukes, Societe Generale strategist.
European shares rose on Monday, boosted by hopes that the Federal Reserve may slow the pace of interest rate hikes, as investors braced for a busy week of earnings and a key interest rate decision from the European Central Bank.
Continental STOXX 600 Index (.stoxx) It rose by 1.14%.
Markets are still set for a 75 basis point rate hike next month, but they scaled back bets on a similar move in December. Peak prices have also fallen to around 4.87%, from above 5% early last week.
Fed officials, including San Francisco Fed President Mary Daly and St. Louis President James Bullard, indicated that the pace of tightening would be at the center of any policy discussion at the November meeting.
“What this means for markets is that prices and FX markets can now become more sensitive to incoming economic data and any evidence of financial market stress,” said Derek Halpini, head of research at MUFG.
Chinese blue chips (.CSI300) It fell nearly 3%, while Hong Kong shares fell 6.4%, their biggest one-day drop since the financial crisis. The offshore yuan hit another record low against the dollar after Xi Jinping secured an unprecedented third term of leadership, selecting a supreme governing body filled with loyalists. Analysts say Xi is likely to stick to his policy of not spreading the novel coronavirus, which is detrimental to growth.
Late GDP data showed that China’s economy grew 3.9% in the third quarter, above expectations of 3.5%, but retail sales disappointed, rising 2.5%.
Investors will take a look at the US GDP on Thursday and core inflation measures the following day. The economy is expected to grow at an annualized rate of 2.1% in the third quarter.
The European Central Bank meets this week and is widely expected to raise interest rates by 75 basis points.
The euro was last traded at $0.98640, after briefly reaching $0.9899 early in the session.
The Bank of Canada is also expected to tighten the noose by 75 basis points at its meeting this week.
US Treasury yields rose on Monday as investors remained concerned that the Federal Reserve may maintain its hawkish stance on fighting inflation despite economic data pointing to a slowdown in US business activity in October.
The 10-year US Treasury yield was trading at 4.127% from a 15-year high of 4.337% on Friday.
In the commodity markets, Brent crude futures fell 0.06%, to pare losses after weak data on Chinese demand. US crude lost 0.7%.
Gold fell with the strength of the US dollar and the returns affected the attractiveness of bullion. Spot prices are down 0.04%.
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Covering by Chris Prentice in Washington and Amanda Cooper in London Additional reporting by Amruta Khandekar, Devik Jain and Wayne Cole Editing: Nick McPhee and Matthew Lewis
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