Global equity markets rallied and the dollar slid on Thursday as earnings from Walt Disney, Siemens and AstraZeneca dispelled investor worries about the economy and future pace of interest rate hikes, helping stocks advance to one-year highs in Europe.
Wall Street surged after big gains in S&P 500 and Nasdaq futures underpinned early sentiment in Europe and overnight in Asia. Crude prices eased, with gold firmer as the dollar index fell 0.416%.
The view of a strong economy and signs of slowing inflation dispelled for the moment fears that tighter monetary policy by the Federal Reserve and other central banks to tame price pressures would lead to sharp downturns or a recession.
“There’s this belief we can still have a strong economy, a strong labor market and that inflation will continue to decline,” said Ed Moya, senior market analyst at OANDA in New York.
However, getting inflation down to the Fed’s 2% target could easily take more than a year as energy prices may remain elevated, a fact making some in the market nervous, he said.
“There’s going to be a rude awakening at some point and that you’re going to need to see something break to get inflation all the way back down,” Moya said.
Data again showed a tight U.S. labor market even as the number of Americans filing new claims for unemployment benefits rose more than expected last week, news that helped set aside concerns that interest rates will stay higher for longer.
In the latest move by major central banks, Sweden’s Riksbank on Thursday raised its key interest rate by half a percentage point to 3%, and forecast further tightening in the spring.
MSCI’s U.S.-centric index of stock performance in 47 countries gained 0.34%, increasing year-to-date gains to more than 8% after an 18% decline in 2022. The pan-European STOXX 600 index rose 0.66% to a one-year high.
On Wall Street, the Dow Jones Industrial Average advanced 0.28%, the S&P 500 gained 0.23% and the Nasdaq Composite added 0.26%.
German consumer prices, harmonized to compare with other European Union countries, rose by a less-than-expected 9.2% on the year in January, helping reassure markets that prices have peaked.
But the downward trend in inflation is unlikely to alter the European Central Bank’s policy outlook, said Michael Hewson, chief market analyst at CMC Markets.
“It’s not going to change the ECB’s mind for a 50 basis point rate hike in March,” he said.
Whether China comes “roaring back” in the second half of year to drive the global economy is unclear and whether that would trigger another round of inflationary pressures, said Paul Major, manager of Bellevue Healthcare Fund Plc.
“We are still caught in this vacillating macro economic dynamic with risk on, risk off again. People are still calibrating their way through what normal growth looks like,” Major said.