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European Shares Hold Near 5-1/2 Week High as Dollar Languishes on Fed Rate Hike Expectations

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European shares are holding steady near a 5-1/2 week high, while the dollar remains at its lowest level in two-and-a-half months, as investors anticipate that the US Federal Reserve will not raise interest rates further. The pan-European STOXX 600 index is unchanged at 455.98 points and is on track for its biggest monthly gain since January, having risen over 5% this month. Germany’s DAX is up 0.15%, while France’s CAC 40 and Britain’s FTSE 100 are slightly weaker. Wall Street futures are trading lower ahead of the release of minutes from the Federal Reserve’s last meeting, which will provide insight into the future direction of interest rates.

US stock markets rallied on Monday, with Nasdaq leading the way with a 1% rise as heavyweight Microsoft hit a record high following the appointment of Sam Altman, the former head of OpenAI. Stock markets have rebounded this month as data suggests that US inflation may be slowing, leading to speculation that the Federal Reserve will not tighten monetary policy further and may even cut rates next year.

The drop in inflation in both the US and Europe has been “positive and quite substantial,” says Hani Redha, portfolio manager, global multi-asset at PineBridge Investments. The easing of inflation and improved financial conditions have provided relief for risk assets. Traders have almost fully priced in the likelihood that the Fed will keep interest rates unchanged in December, and some have even started pricing in rate cuts as early as March, according to the CME Group’s FedWatch tool.

Asian markets are also performing well, with MSCI’s broadest index of Asia-Pacific shares outside Japan up 0.6% and Japan’s Nikkei remaining close to the 33-year high it reached on Monday. The MSCI World Equity Index has gained 0.1%.

Treasury yields have fallen following a successful $16 billion sale of 20-year Treasury bonds on Monday, suggesting that the market expects inflation to slow and the Fed to cut rates next year. The yield on 10-year Treasury notes is down 1 basis point to 4.41%, while the yield on the 30-year Treasury bond is down 3 basis points to 4.547%.

The dollar remains weak, with the dollar index down 0.1% at 103.30, close to a three-month low. The Japanese yen has strengthened to 147.155 per dollar, moving away from the one-year low it reached last week. The Chinese yuan has risen to its highest level since July, benefiting from a weaker dollar.

Elsewhere, the Australian dollar has touched a more than three-month high of $0.6587, and spot gold has risen to $1977.60 per ounce, its highest level in over two weeks, boosted by the weaker dollar. Oil prices have eased, with US crude down 1% to $77.03 per barrel and Brent down a similar amount at $81.54.

More detail via Yahoo! Finance here… ( Image via Yahoo! Finance )

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