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Euphoria in the markets after Jerome Powell’s words: bonds fall, the global dollar and stocks rise

Contrary to the forex, global stock markets are up and bond yields are down, following Powell’s upbeat inflation remarks on Tuesday, which raised expectations of imminent rate cuts in the United States.

The pan-European STOXX 600 index gained 0.6%, led by the travel and leisure sector. In contrast, the MSCI Asia-Pacific index outside Japan fell 0.08%, although it remained close to its more than two-year high reached earlier in the week.

In the euro zone, bond yields fell sharply in France and Italy as investors reduced the political risk premium assigned to them ahead of French parliamentary elections, which had suggested possible gains for the far right.

German 10-year bond yields, the benchmark for the euro zone, fell 6 basis points (bp) to 2.52%. French 10-year bonds fell 9 bp to 3.163%, and Italian 10-year bonds fell 10 bp to 3.858%. These yields, which move inversely to prices, had risen at the end of June due to fears of increased spending in the event of a victory for the far right in France. Italian yields also rose due to investor aversion to countries with high debt levels.

Equity markets are excited

Stocks, which had been muted for much of the year, were boosted by rising expectations of a Fed easing cycle that could begin in September. Powell said Tuesday that the United States is “no longer an overheated economy.”.

According to CME’s FedWatch tool, the odds of a rate cut in September have risen to more than 70%, up from around 50% a month ago.

European stock exchanges Madrid Ibex

In the euro zone, bond yields fell sharply in France and Italy as investors reduced the political risk premium assigned to them ahead of French parliamentary elections, which had suggested possible gains for the far right.

Photo: Madridiario

S&P 500 futures are up 0.15%, while Nasdaq 100 futures are up 0.29%, boosted by gains in high-profile companies such as Nvidia and Tesla andin pre-market operations.

The dollar index, which measures the greenback’s performance against a basket of six currencies including the euro and yen, was little changed at 105.09, after rising about 0.1% on Tuesday. Against the yen, the dollar was up 0.1% at 161.515 yen, due to sharp differences in interest rates between the United States and Japan.

Source: Ambito

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