(Bloomberg) — Stocks and bonds extended gains Thursday as traders bet the Federal Reserve is coming to the end of its historic tightening campaign. The latest major company earnings also provided a dose of good news.
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S&P 500 contracts added about 0.5%, while Nasdaq 100 futures rose 0.7%. Both underlying indexes had jumped on Wednesday after the Fed held interest rates steady and the Treasury announced plans to slow the pace of increases in quarterly long-term securities sales. The 10-year US Treasury yield dipped two basis points after falling below 4.75% for the first time in two weeks.
Starbucks Corp. rose after sales surpassed expectations. Novo Nordisk A/S rose after reporting that third-quarter sales surged amid the frenzy for its blockbuster obesity and diabetes drugs. Shell Plc gained after accelerating the pace of share buybacks as its third-quarter profit rose. Apple Inc. headlines the roster of US earnings due later.
While the Fed left the door open to another increase after pausing Wednesday, officials hinted that a run-up in long-term Treasury yields reduces the impetus to tighten policy further. The Bank of England is likely to keep interest rates at the highest level since 2008 later Thursday, amid evidence that the UK economy, labor market and inflation are weakening.
Optimism that central banks have come to the end of their rate hiking campaign fueled gains in Europe, led by rates-sensitive real estate stocks.
Fed Chair Jerome Powell on Wednesday noted that financial conditions have “tightened significantly in recent months driven by higher, longer—term bond yields, among other factors.” He repeatedly said the committee was moving “carefully,” a wording that often has signaled a low likelihood of any immediate change in policy, while adding that risks to the outlook have become more two-sided as the tightening campaign nears its end.
“The Fed did not throw in the towel yesterday, but the changes in the speech are in line with a more moderate growth situation,” said Florian Ielpo, head of macro research at Lombard Odier Asset Management. “What transpires from the speech is essentially a first eyebrow raised at the real growth situation, which markets decided to take for a ‘bad news is good news’ message.”
US yields were already heading lower prior to the Fed decision after the government announced plans to borrow slightly less than expected over the next three months, reassuring investors worried about a deluge of debt issuance.
The dual statements from the Treasury and Fed helped reverse some of the steep declines in US government debt and the S&P 500 over the last three months. The US stock gauge has now climbed for three days in a row, and strategists including at Barclays Plc said the bar for a further rally was low on wagers of a peak in rates as well as supportive year-end seasonal trends.
In commodities, global benchmark Brent crude oil rose past $85 a barrel, after sliding around 5% over the previous three sessions.
Key events this week:
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Eurozone S&P Global Eurozone Manufacturing PMI, Thursday
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Bank of England interest rate decision. Governor Andrew Bailey holds news conference, Thursday
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US factory orders, initial jobless claims, productivity, Thursday
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Apple earnings, Thursday
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China Caixin services PMI, Friday
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Eurozone unemployment, Friday
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US unemployment, nonfarm payrolls, Friday
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Canada employment report, Friday
Here are some of the major moves in markets:
Stocks
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S&P 500 futures rose 0.4% as of 6:38 a.m. New York time
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Nasdaq 100 futures rose 0.7%
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Futures on the Dow Jones Industrial Average rose 0.3%
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The Stoxx Europe 600 rose 1.4%
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The MSCI World index rose 0.6%
Currencies
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The Bloomberg Dollar Spot Index fell 0.5%
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The euro rose 0.5% to $1.0627
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The British pound rose 0.3% to $1.2190
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The Japanese yen rose 0.4% to 150.37 per dollar
Cryptocurrencies
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Bitcoin was little changed at $35,441.5
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Ether fell 1.1% to $1,834.76
Bonds
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The yield on 10-year Treasuries declined two basis points to 4.71%
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Germany’s 10-year yield declined five basis points to 2.71%
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Britain’s 10-year yield declined 10 basis points to 4.40%
Commodities
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West Texas Intermediate crude rose 1.2% to $81.44 a barrel
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Spot gold rose 0.3% to $1,988.52 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Winnie Hsu.
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