Markets Rally as Fed, BoE Bolster Rate Relief Hopes

GLOBAL MARKET - LONDON. Share and bond markets extended a global rally on Thursday as non-committal Federal Reserve and Bank of England chiefs had traders doubling down on bets that world interest rates may finally have peaked.

Even though neither the Fed nor BoE signalled that rate cuts were likely any time soon, just the glimpse of light at the end of the tunnel after 20 months of relentless hiking was enough to recharge the bulls.

Europe's STOXX 600 and London's FTSE were both up well over 1% with Wall Street opening not too far behind as the dollar took its biggest dive in the currency markets since July.

Shorter-term bond market yields were at two-month lows and the dollar's back-pedalling meant relief for the under-pressure Japanese yen and dozens of emerging market currencies that have been suffering this year.

Fed Chair Jerome Powell's comments that the U.S. central bank's aggressive 20-month run of rate increases was likely to slow the economy after what he had described as the "outsized" jump in Q3 U.S. GDP, was the main takeaway for many analysts, although he had been careful to keep the door open to another hike if needed.

The BoE's Governor, Andrew Bailey, tried to hammer home that "it's much too early to be thinking about rate cuts," but a 0.4% drop by the pound versus the euro and tumble in gilt yields suggested traders were at least considering it.

"They’ll likely be sitting on ‘Table Mountain’ for a while," said Samuel Zief, head Of global fx strategy at J.P. Morgan Private Bank in London, referring to the BoE keeping rates at their current 5.25%.

"But in our view the next move for the BoE will be to lower rates."

Markets are now pricing in a rate cut around September 2024, which would be well after other parts of Europe are expected to have started the process.

Jefferies' chief European economist Mohit Kumar said, "we remain of the view that November could see a positive performance from rates, credit and equities".

APPLE EYED

Overnight, MSCI's broadest index of Asia-Pacific shares outside Japan had surged 1.75%，the biggest daily jump since late July. Tokyo's Nikkei had also gained 1.1% while the S&P 500's early rise put it on firmly on track for a fourth day on unbroken gains.

Investors are keenly awaiting results from Apple, a bellwether for consumer demand and the tech sector. The Cupertino, California-based company is expected to report a 1% decrease in quarterly revenue.

The next big focal point after that will be U.S. non-farm payrolls data on Friday, which analysts expect to show the economy added 180,000 jobs in October, slowing from a 336,000 increase the previous month.

It will come after mixed data showed strong job openings and slower than expected growth in private payrolls.

Fed funds futures markets were continuing to pare back the chance of a December rate hike to about 20% and a January move to 25%. Markets have priced in a 70% chance that the tightening is now over and U.S. rate cuts could begin as soon as June next year.

The upbeat mood was also lifting commodity markets. Brent crude futures climbed as much as 1.6% to $85.95 a barrel while U.S. West Texas Intermediate futures reached as high $82.07 before easing back to just under $81 a barrel.

The price of gold, which has surged almost 10% since Hamas' attack on Israel last month ignited Middle East tensions, was 0.2% higher at $1,985.99 per ounce.

Global head of commodities, options and international markets at CME, Derek Sammann said volatility and volumes in options markets have spiked sharply over the last month due to the troubles.

October saw a 22% jump in overall options volumes year-on-year while those that focus on energy markets like oil have surged nearly 80%. "There are so many unknowns at the moment," Sammann said.