By Chris Prentice and Ritvik Carvalho
WASHINGTON/LONDON (Reuters) – U.S. stocks were higher on Monday and global stocks advanced in choppy trade after hitting a four-week low earlier in the session, with investors still digesting last week’s surprise hawkish shift by the U.S. Federal Reserve.
The U.S. dollar retreated from Friday’s 10-week high. Yields on 10-year Treasuries turned higher after sliding overnight to a four-month low of 1.354%. But the benchmark note was still trading well below its recent mid-point range of about 1.6% after traders reacted to Federal Reserve expectations for a rate hike.
Shares of banks, energy firms and other companies that tend to be sensitive to the economy’s fluctuations were higher, recovering some losses after have fallen sharply since the Fed’s meeting on Wednesday, when the central bank caught investors off guard by anticipating two quarter-percentage-point rate increases in 2023.
The Dow Jones Industrial Average rose 1.45%, the S&P 500 gained 1% and the Nasdaq Composite added 0.2% by 10:31 a.m. EDT (1431 GMT). [.N]
“Bulls are attempting to regroup this morning after last Friday’s plunge,” Paul Hickey of Bespoke Investment Group said in a market note.
Stocks in Asia took their cue from Wall Street’s falls on Friday but European shares bucked the trend, with the pan-European STOXX 600 index up 0.6%. [.EU]
“The situation in reality is actually pretty good – the Fed is stabilizing inflation,” said Sebastien Galy, senior macro strategist at Nordea Asset Management in Luxembourg. “Cyclical sectors may have overshot the market in the short term and so you may have a bit of pressure on the sector.”
Galy noted the “interesting part” of the correction was that it lagged as traders digested the news.
MSCI’s All Country World Index, which tracks shares across 49 countries, was up 0.5% after hitting its lowest since May 24.
Earlier in Asia, Japan’s Nikkei led declines with an over 3% drop and dipped below 28,000 for the first time in a month, while MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.2%.
The U.S. dollar index was down 0.4%, off Friday’s 10-week high of 92.408, following its biggest weekly advance in more than a year.
St. Louis Fed President James Bullard further fueled the sell-off on Friday by saying the shift toward faster policy tightening was a “natural” response to economic growth and particularly inflation moving quicker than anticipated as the country reopens from the coronavirus pandemic.
“We believe there is a limit to how much more hawkish the Fed can be given its inflation projections relative to the catch-up rates range,” BlackRock analysts said in a note.
“Our bottom line: We believe the Fed’s new outlook will not translate into significantly higher policy rates any time soon.”
Several Fed officials have speaking duties this week, including Chair Jerome Powell, who testifies before Congress on Tuesday. European Central Bank President Christine Lagarde speaks before the European Parliament on Monday.
The euro was up 0.46% to $1.1915. Sterling recovered some ground, to trade 0.9% higher after sliding to its lowest since April 16. [GBP/]
Commodity-linked currencies have also suffered, with the Australian dollar hovering above a six-month low at $0.7495.
A stronger greenback has pressured cryptocurrencies, too, with bitcoin falling 7.7%, while smaller rival ether lost 11%.
In commodities, gold rebounded 1.0% to $1,781.41 an ounce on Monday, looking to snap a six-day losing streak, but remained near the lowest since early May.
Copper continued to fall on Monday, hitting its lowest level since mid-April after moves by China to rein in commodities price rallies and signals from the U.S. Federal Reserve it will tighten monetary policy sooner than expected. Benchmark copper on the London Metal Exchange (LME) was down 0.8% at $9,070 a tonne in official trading, after touching $9,011.
Crude oil rose, underpinned by strong demand during the summer driving season and a pause in talks to revive the Iran nuclear deal that could indicate a delay in resumption of supplies from the OPEC producer.
Brent crude futures rose to $74.48 a barrel, up 1.32% on the day, as Intermediate (WTI) crude rose 1.9% to $73. [O/R]
(Reporting by Chris Prentice in Washington and Ritvik Carvalho in London; Additional reporting by Kevin Buckland in Tokyo and Herb Lash in New York; Editing by Catherine Evans, Peter Graff and Nick Zieminski)
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