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US stocks set to post weekly gain on hopes ‘central bank storm’ will pass

US blue-chip stocks wavered in holiday-thinned trade on Friday, but were set to post a gain for the week as investors took heart in a dovish set of Federal Reserve minutes published earlier in the week.

The benchmark S&P 500 was flat at lunchtime in New York, while the tech heavy Nasdaq Composite was down 0.5 per cent. Wall Street markets were closed for Thanksgiving on Thursday and a half-day on Friday means activity is expected to be much lighter than usual.

The S&P is still set to end the week more than 1 per cent higher after minutes from the Fed’s November meeting, at which the central bank raised its main policy rate by 0.75 percentage points for the fourth time in a row, suggested a majority of officials were prepared to slow the pace of interest rate rises soon, when they are confident inflation has been tamed.

“We are probably seeing the end of the central bank storm and that is enough of a relief for most markets to see positive performances,” said Florian Ielpo, head of macro at Lombard Odier. “The Fed is not behind the curve any more, or so it seems.”

US government bonds also zigzagged on Friday. The two-year Treasury yield was flat at 4.48 per cent, while the 10-year yield was little changed at 3.73 per cent.

The yield on 10-year Treasuries surged as high as 4.34 per cent in late October, its highest level since 2007, but has slipped back since as investors have begun to bet that inflation in the world’s biggest economy may have peaked. Inflation eats into the value of bonds’ fixed payments, rendering them less attractive to investors.

Line chart of 10 year Treasury yield (%) showing US government bond yields fall back from 2022 highs

The US dollar, meanwhile, rose 0.2 per cent against a basket of six peers, trimming its more than 4 per cent decline so far in November.

European stocks took a cue from the tame US session, trading near the flat line. The regional Stoxx Europe 600 was flat, while London’s FTSE 100 ticked up 0.3 per cent.

Asian equities, meanwhile, declined as pessimism over rising Covid-19 cases in China damped investor sentiment. Hong Kong’s Hang Seng index dropped 0.5 per cent, trimming earlier losses, while Japan’s Topix finished flat and South Korea’s Kospi shed 0.1 per cent. China’s CSI 300 gained 0.5 per cent after early losses.

Oil prices gave up their morning gains to trade slightly lower, with Brent crude, the international marker, down 0.4 per cent to $84.97 per barrel. US benchmark West Texas Intermediate slipped 0.3 per cent to $77.73 a barrel. Both prices are down about 3 per cent for the week, with concerns over the outlook for China’s massive economy weighing on sentiment.

Abdullah Anaman
Abdullah Anaman
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