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By Dhara Ranasinghe
LONDON, Oct. 26 (Reuters) – World stocks hit a five-week high on Wednesday, bolstered by growing hopes that the pace of US rate hikes could slow down soon.
Futures on Wall Street stocks fell, pointing to a weak opening later, after Google owner Alphabet posted less-than-expected ad sales after Tuesday’s close and Microsoft missed expected revenue forecasts.
But European equities moved higher after opening softer, taking some comfort from optimistic banking earnings. Deutsche Bank posted a better-than-expected increase in profits in the third quarter, while British bank Barclays also outperformed earnings forecasts amid a trade boom.
MSCI’s World Stock Index hit a five-week high as Asian stocks rose.
While the US Federal Reserve is widely expected to push another 75 basis point rate hike at its November meeting, it believes the central bank could slow its aggressive tightening cycle, boost sentiment in global stock markets and extend the lead of a take away dollars. rally.
“The MSCI World Equity Index is now nearly 10% below its low – a move helped by some stability in Europe and likely the very high cash and underweight equity positions of the investment community,” said Chris Turner, Global Head of Markets at ING.
“It feels like it’s too early to make ‘everything’ clear to equity markets — for example, the Fed could push US real interest rates deeper into restrictive territory — meaning we view this dollar decline as corrective.”
The euro moved above $1 for the first time in five weeks, while the dollar index – which measures the dollar’s value against a basket of other major currencies – fell to a three-week low.
The Bank of Canada is widely expected to raise interest rates by another 75bp later in the day to contain persistently high inflation.
In Asia, the broadest MSCI index of Asia-Pacific stocks outside of Japan rose more than 1%, while Japan’s Nikkei rose 0.7%, reaching its highest level since September 20.
Chinese stocks gained some ground after a sharp sell-off on Monday, sparked by concerns that President Xi Jinping’s new leadership team, unveiled on Sunday, will prioritize the state at the expense of the private sector, and a strict zero-COVID policy will maintain, possibly in the next year.
Shane Oliver, chief investment strategy and chief economist at AMP Capital, said the rally in Asia was bolstered by expectations that the Fed would slow the pace of rate hikes after another big hike next week.
“Central banks will raise interest rates and the risk of a recession is still there.”
A Reuters poll found that economists have again lowered growth forecasts for major economies as the global economy approaches recession.
US data on Tuesday showed that home price growth slowed and consumer confidence deteriorated, with some signs that the Fed’s aggressive rate hikes are beginning to cool the job market.
Treasuries have risen and yields on the benchmark 10-year US government debt fell 7 basis points to around 4.03% last time.
In Australia, inflation rose to its 32-year high in the quarter as housing and gas costs soared. The surprise put additional pressure on the central bank to reverse a recent turnaround, though markets doubt a dramatic shift will take place.
The Australian dollar rose more than 1%.
Meanwhile, the pound rose to its highest point since mid-September at around $1.1579, buoyed by expectations new Prime Minister Rishi Sunak will be able to restore calm after weeks of unrest.
The Chinese yuan also strengthened against the dollar after major state-owned banks were spotted in the previous session selling the dollar to stabilize the market.
Elsewhere, oil prices fell as industry data showed US crude inventories rose more than expected. Brent oil futures for December were down 58 cents, or 0.7%, to $92.90 a barrel.
(Reporting by Dhara Ranasinghe; additional reporting by Ankur Banerjee in Singapore; editing by Kim Coghill)