Rising Global Equity Markets Amid Central Banks' Decisions
Global equity markets and Treasury yields experienced a significant surge on Monday. The uptick is attributed to investors preparing for upcoming interest rate decisions by major central banks, including the US Federal Reserve. They also have an eye on corporate earnings that could provide insights into the current state of the economy.
Expectations High for Federal Reserve's Rate Hike
Data from CME Group suggests that a large majority of traders are expecting the Federal Reserve to hike interest rates by 25 basis points in its policy meeting this week. This anticipation is stirring concerns of an impending recession, despite the US economy demonstrating notable resilience.
Central Banks Worldwide: Diverse Economic Stances
While investors look towards the Fed, the European Central Bank and the Bank of Japan also have critical meetings this week. The European Central Bank is anticipated to uphold its hawkish stance, whereas the Bank of Japan is likely to maintain its ultra-accommodative monetary policy.
Trends in Treasury Yields and Corporate Earnings
There's a bounce-back in the yields of 10-year notes, now standing at 3.859%, and an increase in rate-sensitive two-year yields to 4.8933%. Market players are also eagerly awaiting the release of positive results from leading U.S. firms such as Alphabet Inc, Meta Platforms Inc, Intel Corp, and Microsoft Corp, who have played a significant role in driving a nearly 19% year-to-date rise in the benchmark S&P 500.
Wall Street and European Stocks – A Closer Look
A minor increase was seen in the MSCI world equity index, which tracks shares in 50 countries, as it rose 0.27%. European stocks saw a slight rise of 0.06%, while on Wall Street, the Dow Jones Industrial Average climbed 0.54%, the S&P 500 rose 0.43%, and the Nasdaq Composite increased by 0.13%.
Market Volatility and the Rising US Dollar
Tom Plumb, portfolio manager at Plumb Balanced Fund, predicts potential market volatility if the Federal Reserve's decisions deviate from expectations. Meanwhile, the US dollar has gained ground against major currencies, bolstered by data showing the resilience of the American economy compared to its global counterparts.
US Business Activity: A Slight Deceleration
Despite the overall economic resilience, the US business activity has shown a slight deceleration, hitting a five-month low in July. This is primarily due to a slowdown in the service sector growth. However, the slowdown seems minor compared to similar surveys conducted in Europe, allowing the dollar index to rise by 0.198%, with the euro down by 0.42% to $1.1076.
