© Reuters. FILE PHOTO: Passersby are reflected on an electric stock quotation board outside a brokerage in Tokyo, Japan April 18, 2023. REUTERS/Issei Kato/File Photo
By Caroline Valetkevitch
NEW YORK (Reuters) – Global stock indexes jumped and the U.S. dollar fell on Thursday on investor optimism that the Federal Reserve may be done hiking interest rates, while benchmark 10-year Treasury yields fell to three-week lows.
Investors also took in Thursday’s actions by the Bank of England, which kept rates at a 15-year high and stressed that it did not expect to start cutting them any time soon.
The Fed on Wednesday held interest rates steady as expected, and while Chair Jerome Powell left the door open to more tightening he also nodded to the impact of a recent surge in bond yields on the economy.
Even though neither the Fed nor the 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.
Bond yields extended their move lower from Wednesday, on relief that the U.S. Treasury Department announced smaller-than-expected increases in longer-dated Treasury supply.
On Wednesday, the Treasury said it would raise auction sizes for longer-dated debt by less than was expected and noted that it expects one more quarter of auction size increases to meet its financing needs.
Benchmark 10-year note yields were last down 12 basis points at 4.669% and earlier reached 4.626%, the lowest since Oct. 13.
In U.S. stocks, the registered its biggest one-day percentage gain since April 27.
Upbeat quarterly corporate results added to bullish sentiment on Wall Street. Apple shares (NASDAQ:) closed up 2.1% ahead of its results after the closing bell.
The rose 564.5 points, or 1.7%, to 33,839.08, the S&P 500 gained 79.92 points, or 1.89%, to 4,317.78 and the added 232.72 points, or 1.78%, to 13,294.19.
The pan-European index rose 1.58% and MSCI’s gauge of stocks across the globe gained 1.96%, which would be its biggest daily percentage jump since November 2022.
The moves followed sharp gains overnight in Japanese stocks.
In foreign exchange, the U.S. dollar was broadly lower on the perception that U.S. rate had peaked, raising risk appetite.
Brad Bechtel, global head of FX, at Jefferies in New York, said the Fed is probably done hiking rates, but he could see the rationale for tightening one more time given the still-resilient U.S. economy.
“But at the same time, everyone is looking at a slowdown and inflation is going in the right direction,” Bechtel said.
Fed funds futures indicated a sub-20% chance that U.S. rates will rise in December.
Sterling, meanwhile, held firm after the BoE decision. The pound rose as much as 0.6% against the dollar to $1.2225, its highest level in 1-1/2 weeks. Sterling was last up 0.4% at $1.2201.
The , which measures the greenback against six other major currencies, was last 0.3% lower at 106.18.
, sometimes traded as a proxy for risk-taking, broke above $35,000 to hit its highest level since May 2022.
Oil prices ended sharply higher in the wake of the Fed decision to leave rates unchanged, with futures settling at $82.46 a barrel, up $2.02, and futures settling at $86.85, up $2.22.
Also, U.S. non-farm payrolls data is due out on Friday. A tight labor market is considered a key factor in the outlook for interest rates.
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