Global markets: Equities extend gains as bond yields slow

The global actions rise this Thursday and extends the momentum of the previous session, when the data showed a relief in US core inflation that increased expectations of cuts by the Federal Reserve and sent global bond yields lower.

Strong results from global blue-chip companies further fueled the equity rally and supported risk sentiment across various asset classes. Richemont (CFR.S), owner of the Cartier jeweler, rose one 17%, on track for their best day in 17 yearsafter its results exceeded analysts’ expectations, boosting the European luxury sector in general. (.STXLUXP)

Earlier in the day, semiconductor maker Taiwan Semiconductor Manufacturing Co (2330.TW) reported a record quarterly profit, albeit within expectations, and rose 3.7%, offering support to other chip companies. (.SX8P)

Overnight, JP Morgan (JPM.N), BlackRock (BLK.N) and Goldman Sachs (GS.N) reported robust gains. This left Europe’s STOXX 600 up 0.7% (.STOXX), its highest level in a month and within 2% of September’s record.

Asian stocks excluding Japan (..MIAPJ0000PUS) rose 1.3%, while on Wall Street on Wednesday, the three major indexes posted their biggest daily percentage gains since Nov. 6, the day after the presidential elections in the USA.

The market took a deep breath after the inflation data

Earnings aside, the rally in risk assets emerged from Wednesday’s benign US inflation report, which showed the consumer price index rose in line with expectations, with an annual rate of 2.9% in December, while core inflation, which excludes food and energy prices, rose 3.2%, below forecasts of 3.3%.

The inflation report led traders to price in a 50% chance of a second 25 basis point Fed rate cut this year. Before the data, expectations were that the Fed might not cut further this year. Markets gave the data greater credibility because other reports showed a similar picture.

Numbers released on Tuesday showed that US producer prices rose moderately in December. Wednesday’s softer UK inflation report also provided support. “Wherever you were in the world yesterday, you surely heard the big collective sigh of relief from financial markets, as the downward surprises in US and UK inflation allowed us to move away from the recent one-way trade on inflation and bond yields,” Jim Reid, global head of macroeconomic research at Deutsche Bank, said in a morning note to clients.

The benchmark 10-year Treasury yield fell 13.5 basis points following the data, its biggest daily drop since mid-November. It remained stable on Thursday at 4.66%, after having exceeded 4.8% at the beginning of the week. The movements were even greater in the United Kingdom, whose government bonds have been some of the biggest victims of the recent global sell-off. The 10-year bond yield fell 15 basis points on Wednesday, its biggest drop since late 2023.