By Lawrence Delevingne and Tom Wilson
(Reuters) -World shares gained on Thursday as expectations of interest rate cuts stretched a rally in U.S. stocks, while benchmark Treasuries and the dollar held near five-month lows.
On Wall Street, the Dow Jones Industrial Average rose 0.18% and the Nasdaq Composite gained 0.22%.
The S&P 500 also ticked up; the index has climbed 11.7% this quarter to come within a whisker of its all-time closing peak, while its price to earnings ratio is up by a quarter on the year at 24.0. [.N]
The MSCI world equity index, which tracks shares in 47 countries, gained 0.21%, with European shares steady, near a 23-month high hit two weeks ago, and were on course for gains of about 12.5% this year.
“Right now, we really do not want to step in front of Santa’s gift-laden sleigh,” Scott Wren, senior global market strategist at Wells Fargo Investment Institute, wrote in a note Thursday. “It appears the rally could very well put the S&P 500 Index at or very near an all-time record high as we close out the year.”
Still, Wren said the market “will struggle to post meaningful gains in the first part of the year while the economy continues to slow.”
The number of Americans filing initial claims for unemployment benefits rose last week, indicating the labor market continues to cool in the year’s fourth quarter.
“Claims data have told a consistent story in recent months of slowing hiring, but still limited layoffs,” Citi analysts wrote in a note on Thursday.
Still, an absence of major news has not stopped investors from ramping up bets on rapid-fire rate cuts next year from the Federal Reserve.
“The rapid decline in inflation is likely to lead the Fed to cut early and fast to reset the policy rate from a level that most participants will likely soon see as far offside,” analysts at Goldman Sachs wrote in a note.
“We expect three consecutive 25-bp cuts in March, May, and June, followed by one cut per quarter until the funds rate reaches 3.25-3.5% in 2025 Q3. Our forecast implies 5 cuts in 2024 and 3 more cuts in 2025.”
Earlier, MSCI’s broadest index of Asia-Pacific shares outside Japan added another 1.5%, to be up about 11% in two months and at its highest since August, boosted by gains in Chinese stocks.
BOND BULGE
Yields on 10-year Treasury notes stood at 3.833%, slightly up on the day after having hit a five-month low overnight. The two-year yield was down at 4.266%, having been as high as 5.295% as recently as October. [US/]
The declines, while consistent with the overall trend, were helped by robust demand at a five-year Treasury auction.
The falls lifted the euro to its highest since July at $1.10740, having gained about 1.7% so far this month to within sight of its 2023 top of $1.1276.
The dollar index, which measures the U.S. currency against a basket of rivals, was little changed, near a five-month low. The index is on course for a roughly 2.3% decline this year, snapping two straight years of strong gains. [FRX/]
“Investors are placing more weight on Fed expectations driving currencies than the signalling from other central banks like the ECB,” said Alan Ruskin, global head of G10 FX strategy at Deutsche Bank.
“In part, that’s because the Fed also has more impact on the overall global risk environment, which has become more risk friendly and thereby also less USD positive.”
The dollar also lost ground to the yen at 141.250 yen, having shed 4.69% for the month so far. It is still up sharply for the year as the Bank of Japan takes a glacial approach to tightening its super-easy policies.
In an interview published on Wednesday, BOJ Governor Kazuo Ueda said he was in no rush to unwind those loose policies as the risk of inflation running well above 2% and accelerating was small.
Oil prices fell on Thursday as concerns eased about shipping disruptions along the Red Sea route, even as tensions in the Middle East continue to fester. [O/R]
U.S. crude fell 1.44% to $73.04 per barrel and Brent was at $78.62, down 1.29% on the day.
Gold prices steadied after hitting a more than three-week high on Thursday, deriving support from a weaker U.S. dollar and lower bond yields as markets bet on rate cuts by the Fed early next year.
Spot gold dropped 0.1% to $2,075 an ounce.
https://www.investing.com/news/stock-market-news/asia-shares-at-fivemonth-highs-as-rate-bets-pile-up-3264186
