As the Fed and BoE boost expectations for rate easing, markets rise

 As the Fed and BoE boost expectations for rate easing, markets rise

Even if the Fed and BoE did not indicate that rate cuts were likely to occur anytime soon, the bulls were buoyed by the prospect of relief after 20 months of nonstop rate hikes.

On November 2, bond and stock markets continued their worldwide surge as traders increased their wagers that the world's interest rates may have finally peaked due to the noncommittal statements made by the heads of the Bank of England and the Federal Reserve.

The bulls were buoyed by the prospect of relief after two years of nonstop rate hikes, even though neither the Fed nor the BoE indicated that rate cuts were likely to occur anytime soon.

The dollar had its worst decline in currency markets since July, but Wall Street opened not too far behind Europe's STOXX 600 and London's FTSE, which were both up more than 1%. (FRX) (.N)

Bond market rates on the shorter term were near two-month lows [GVD/EUR], and the dollar's retreat provided respite for the weakening Japanese yen and several other emerging market currencies that have been weakening this year. (FRX)

The key takeaway for many analysts was Fed Chair Jerome Powell's remarks that the aggressive 20-month run of rate hikes by the US central bank was likely to slow the economy following what he had described as the "outsized" jump in Q3 U.S. GDP, even though he had been careful to leave the door open for another hike if necessary.

Despite Andrew Bailey, the governor of the Bank of England, trying to emphasize that "it's much too early to be thinking about rate cuts," the pound fell 0.4% against the euro, and gilt yields fell, indicating that markets were at least thinking about it.

With reference to the BoE maintaining rates at their current 5.25%, "They'll likely be sitting on 'Table Mountain' for a while," said Samuel Zief, head of global fx strategy at J.P. Morgan Private Bank in London.

"But in our view how to proceed for the BoE will be to lower rates."

As of right now, rates are being priced in for a reduction around September 2024, which would be far after the process is anticipated to have begun in other regions of Europe.

"We remain of the view the month of November could see improvements from rates, credit, and equities," said Mohit Kumar, chief European economist at Jefferies.

GREEN EYED

The largest daily increase since late July occurred overnight, with MSCI's broadest index of Asia-Pacific equities outside of Japan rising 1.75 percent. The S&P 500 was well-positioned to continue its winning streak for a fourth day thanks to its early climb, while Tokyo's Nikkei added 1.1% to its gains. (.N)

Apple's performance is closely watched by investors as it is a leading indicator of consumer demand and the IT industry. It is anticipated that the Cupertino, California-based business will post quarterly revenue that is down 1%.

The U.S. non-farm payrolls statistics, which are expected to reveal that the economy generated 180,000 jobs in October—a slowdown from a 336,000 rise the previous month—will be the next major focus point following that on Friday.

It will follow conflicting figures indicating robust job vacancies and slower-than-anticipated growth in private payrolls.

Fed funds futures markets kept reducing the likelihood of a rate rise in December to around 20% and in January to 25%. Markets have factored in a 70% possibility that the tightening is over and that rate reduction in the US might happen as early as June of the next year.

The positive attitude was also supporting commodities prices. While U.S. West Texas Intermediate futures rose as high as $82.07 before retreating to little under $81 per barrel, Brent oil futures increased 1.6% to $85.95 a barrel.

Gold was 0.2% higher at $1,985.99 per ounce, continuing its almost 10% rise since Hamas' assault on Israel last month sparked tensions in the Middle East.

The problems, according to Derek Sammann, global head of CME's commodities, options, and foreign markets, have caused a substantial increase in volume and volatility in the options markets during the last month.

October showed a 22% year-over-year increase in total options volumes, while volumes focused on energy markets, such as oil, have increased by roughly 80%. "Right now, there are a lot of unknowns," Sammann said.