Shares hold gains as rate cuts eyed for New Year
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World shares edged up on Thursday as expectations of interest rate cuts stretched a rally in U.S. stocks, while benchmark Treasury yields and the dollar lifted slightly from five-month lows.
On Wall Street, the Dow Jones Industrial Average rose 0.14%, while the Nasdaq Composite and the S&P 500 were little changed. The S&P index has climbed 11.6% this quarter and closed within a whisker of its all-time closing peak, while its price-to-earnings ratio is up by a quarter on the year at 24.0. [.N]
The MSCI world equity index, which tracks shares in 47 countries, gained 0.08%. European shares ticked down, but stood near a 23-month high hit two weeks ago and were on course for gains of about 12.5% this year.
"Right now, we really do not want to step in front of Santa's gift-laden sleigh," Scott Wren, senior global market strategist at Wells Fargo Investment Institute, wrote in a note Thursday. "It appears the rally could very well put the S&P 500 Index at or very near an all-time record high as we close out the year."
Still, Wren said the market "will struggle to post meaningful gains in the first part of the year while the economy continues to slow."
The number of Americans filing initial claims for unemployment benefits rose last week, according to data released on Thursday, indicating the labor market continues to cool in the year's fourth quarter.
"Claims data have told a consistent story in recent months of slowing hiring, but still limited layoffs," Citi analysts wrote in a note.
Even so, investors have ramped up bets on rapid-fire rate cuts next year from the Federal Reserve.
"The rapid decline in inflation is likely to lead the Fed to cut early and fast to reset the policy rate from a level that most participants will likely soon see as far offside," analysts at Goldman Sachs wrote in a note.
"We expect three consecutive 25-bp cuts in March, May, and June, followed by one cut per quarter until the funds rate reaches 3.25-3.5% in 2025 Q3. Our forecast implies 5 cuts in 2024 and 3 more cuts in 2025," Goldman Sachs said.
Earlier, MSCI's broadest index of Asia-Pacific shares outside Japan added 1.4%, boosted by gains in Chinese stocks; the index is up about 7.4% this quarter.
BOND BULGE
Yields on 10-year Treasury notes stood at 3.844%, slightly up on the day after hitting a five-month low overnight. The two-year yield ticked back up on the day to 4.275%, having been as high as 5.295% as recently as October. [US/]
The lower levels, while consistent with the overall trend, were helped by robust demand at a five-year Treasury auction.
The declines have lifted the euro to its highest level since July, at $1.10645, and bringing it to a gain of about 1.6% so far this month, within sight of its 2023 top of $1.1276.
The dollar index, which measures the U.S. currency against a basket of rivals, gained 0.2%, still near a five-month low. The index is on course for a roughly 2.3% decline this year, snapping two straight years of strong gains. [FRX/]
"Investors are placing more weight on Fed expectations driving currencies than the signaling from other central banks like the ECB," said Alan Ruskin, global head of G10 FX strategy at Deutsche Bank.
"In part, that's because the Fed also has more impact on the overall global risk environment, which has become more risk friendly and thereby also less USD positive."
The dollar also lost ground to the yen, at 141.415 yen, having shed about 4.6% for the month so far. The dollar, though, is up sharply for the year as the Bank of Japan takes a glacial approach to tightening its super-easy policies.
In an interview published on Wednesday, BOJ Governor Kazuo Ueda said he was in no rush to unwind those loose policies as the risk of inflation running well above 2% and accelerating was small.
Oil prices fell as more shipping companies said they were ready to transit the Red Sea route, easing concerns about supply disruptions as Middle Eastern tensions stay elevated. [O/R]
U.S. crude fell about 3% to $71.90 per barrel and Brent was at $78.38, down 1.59% on the day.
Gold prices eased, pressured by an uptick in the U.S. dollar and Treasury yields after gold hit its highest in more than three weeks during the session.
Spot gold dropped 0.5% to $2,066 an ounce.
