Profit-taking capped global stock markets yesterday after a week of record-setting advances fuelled by a series of dovish central bank signals, while the dollar struggled to extend a gain as US yields ticked lower.
The S&P 500, Nasdaq and Dow sought direction from the open, with the benchmark S&P closing near flat even as it posted its biggest weekly gain of 2024. The MSCI World Equity Index fell 0.26 per cent, but went up 1.8 per cent since late last Friday, its biggest weekly gain this year.
“It’s been a busy week and it’s one of those Fridays where it just feels like every participant is tired. There’s no huge news to drive anything one way or the other, so you’re seeing a market that’s hovering around the unchanged line,” said JJ Kinahan, CEO of IG North America and president of Tastytrade in Chicago.
A surprise rate cut by Switzerland’s central bank on Thursday helped push markets to new highs, as traders realized that major central banks around the world would not necessarily wait for US Federal Reserve rate cuts before delivering their own.
Traders also drew confidence from the Bank of England being more dovish than expected, saying the economy is “moving in the right direction” for it to start cutting rates.
On Wednesday, the Federal Reserve left the fed funds rate alone at 5.25 per cent to 5.50 per cent but indicated it was still prepared to lower rates by 75 basis points this year, despite a worrying uptick in US inflation and economic growth solid enough to maybe even dodge a soft landing.
It said that recent high inflation readings had not changed the underlying story of slowly easing price pressures.
The S&P 500 on Friday fell 0.14 per cent, to 5,234.18, the Dow fell 0.77 per cent and the Nasdaq Composite gained 0.16 per cent, to 16,428.82. For the week they rallied 2.3 per cent, 2.0 per cent and 2.9 per cent, respectively.
Europe’s STOXX 600 fell 0.03 per cent, after touching a new all-time high, while London’s FTSE 100 rose 0.6 per cent, helped by expectations that the Bank Of England would cut rates sooner than previously thought. BoE Governor Andrew Bailey told the Financial Times that the expectation of more interest rate cuts this year on a whole was not “unreasonable”.
“I think there might be some profit-taking at the end of the week, just because of the amount of data that we’ve seen and the fact that we have seen more positive surprises,” said Baylee Wakefield, multi-asset fund manager at Aviva.
Trading may also subside in the lead-up to Easter next weekend, Wakefield added.
“The dollar’s basically going to have its best week since January and that is because markets are now accepting that other major central banks will reduce their policy rate faster than the Fed, especially because we’ve had further evidence from the strong economic data we’ve had out of the US this week,” Wakefield said.
The dollar index gained 0.4 per cent, on track for its best week since the first week of the year, with the euro EUR= down 0.5 per cent at US$1.0807. The probability of a European Central Bank rate cut before summer is increasing, Bundesbank President Joachim Nagel said.
Kinahan said the lack of a definitive date from the Fed for when they might ease was dollar supportive. “I think with that you may be able to see dollar hold on a little bit longer than people would expect, with expected rate cuts.”
The British pound weakened 0.5 per cent to US$1.26 GBP=D3, having earlier hit a one-month low.
The yield on benchmark US 10-year notes fell 6.7 basis points on Friday to 4.204 per cent, while the 2-year note yield, which typically moves in step with interest rate expectations, fell 3.9 basis points to 4.5934 per cent.
Euro zone government bond yields were set for a weekly decline. The benchmark German 10-year yield was down by about 11 basis points at 2.327 per cent.
China’s yuan dropped sharply during Asian trading, hitting a four-month low, in a move analysts attributed to rising expectations that there will be more monetary easing to prop up the country’s economy. The offshore yuan was priced at 7.2759 per dollar in late US trade.
The sudden move knocked the Shanghai Composite index down 0.95 per cent. MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.1 per cent, while Japan’s Nikkei rose 0.18 per cent to a record-high close.
US crude futures settled down 0.54 per cent at US$80.63 a barrel and Brent futures fell 0.41 per cent to US$85.43 per barrel. The possibility of a ceasefire in Gaza weighed on prices, along with the stronger dollar and lower US gasoline demand.
Spot gold fell 0.73 per cent to US$2,164.96 an ounce, but was near a record bid high set on Thursday. US gold futures fell 0.83 per cent to US$2,164.20 an ounce.
Investment flows into gold in the week to Wednesday reached their highest in almost a year, Bank of America Global Research said.
In cryptocurrencies, bitcoin fell 2.82 per cent to US$63,620.00. Ethereum declined 4.74 per cent to US$3318.2. — Reuters
