US stocks open higher as investors weigh slower Fed rate hike

US blue-chip stocks rose on Friday as investors took a liking to the dovish minutes of the Federal Reserve published earlier this week.

The benchmark S&P 500 opened up 0.1 percent in early trading in New York as the market reopened after the Thanksgiving holiday. The tech-heavy Nasdaq Composite fell 0.3 percent as investors took some profits. Both markets close early on Friday.

The S&P ended the week up more than 1 percent after the Fed’s November meeting, at which the central bank raised its key interest rate by 0.75 percentage points for the fourth time in a row, according to most officials. they have committed to slowing the rate of interest rate hikes soon when they are confident that inflation has been tamed.

“We’re probably seeing the end of the central bank storm and that’s enough relief for most markets to see a positive performance,” said Florian Ielpo, head of macroeconomics at Lombard Odier Asset Management. “The Fed is no longer behind the curve, or so it seems.”

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US Treasuries fell as fears lingered over the pace of interest rate changes. The two-year Treasury yield, which is particularly sensitive to interest rate expectations, increased by 0.02 percentage points to 4.5 percent. The benchmark 10-year Treasury yield also rose by 0.02 percentage points to 3.73 percent as the security’s price fell.

The yield on 10-year Treasury notes rose to 4.24 percent in late October, the highest level since 2008, but has since fallen as investors bet that inflation in the world’s largest economy has peaked. Inflation eats away at the value of fixed payments on bonds and makes them less attractive to investors.

Line chart of 10-year Treasury yield (%) showing US Treasury yields falling from 2022 peak

Meanwhile, the US dollar index rose 0.4 percent against a basket of six baskets, paring its more than 4 percent decline so far in November.

European stocks were lower after a European Central Bank official warned that more aggressive interest rate hikes may be needed to tackle persistent inflation in the eurozone.

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The regional Stoxx Europe 600 fell 0.2 percent, off a three-month high, after rising more than 15 percent since its low in late September. London’s FTSE 100 rose 0.1 percent.

The movements in the stock markets came a day after Isabel Schnabel, a member of the ECB’s board of directors, indicated that she intended to raise interest rates by 0.75 percentage points to continue pushing back the euro zone’s inflation from a record high.

The ECB has made two such rate hikes in a row, with some investors hoping for a smaller hike next month as inflation on the continent could be near its peak. Prices charged by German industry groups fell 4.2 percent in October, the first drop in two years.

According to Schnabel, however, “the biggest risk for central banks remains policies that are falsely calibrated to assume a rapid decline in inflation and thus underestimate the persistence of inflation.”

Emmanuel Cau, European equity strategist at Barclays, said European stocks nevertheless benefited from US investors “returning to Europe” as the dollar continued to slide from its late September peak. “The monthly buying of Europe by US-domiciled funds has been the highest since then [war in Ukraine] It started in February.”

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Meanwhile, Asian stocks fell as pessimism over rising Covid-19 cases in China dampened investor sentiment. Hong Kong’s Hang Seng index fell 0.5 percent, paring earlier losses, while Japan’s Topix was flat and South Korea’s Kospi fell 0.4 percent. China’s CSI 300 gained 0.5 percent after early losses.

Oil prices gave up morning gains to trade flat, with Brent crude, the international marker, steady at $85.37 a barrel.

Source: https://www.ft.com/content/fe31213b-1471-4b3a-a050-70187208981c