WASHINGTON/LONDON, Oct 24 (Reuters) – US and European stocks rose on Monday as signs of a softening in the US economy raised hopes that the Federal Reserve will slow rate hikes.
The dollar faced yet another suspicious Japanese interference to rise against the yen.
The Dow Jones Industrial Average (.DJI) rose 346.66 points, or 1.12%, to 31,429.22, the S&P 500 (.SPX) up 33.7 points, or 0.90%, at 3,786.45 and the Nasdaq Composite (.IXIC) rose 37.59 points, or 0.35%, to 10,897.31 p.m. until :43 EDT (1643 GMT).
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The tech-heavy Nasdaq recovered after losses in Tesla Inc (TSLA.O) and other megacap stocks.
Tesla dropped starter prices for its Model 3 and Model Y cars in China after slashing by up to 9%, indicating softening demand in the world’s largest auto market.
In the latest evidence of a slowing economy due to high inflation and rising interest rates, a survey showed that US business activity shrank for the fourth straight month in October. read more
“Investors are becoming more confident that inflation is about to come down and the Fed may stop quickly. The effects of the first few rate hikes will start to be felt over the next few months and the markets are trying to overtake that. When the Fed The pause button will be pressed,” said Edward Moya, senior market analyst at OANDA in New York.
“The Flash PMI showed significant weakness in both the service and manufacturing segments of the economy, which is good news for investors given that the Fed will halt early next year.”
The dollar rose to 149.70 yen in early trade and returned to 145.28 within minutes, which traders and analysts said appeared to be in response to activity by the Bank of Japan. It was last at 148.840.
Japan spent a record 5.4 trillion-5.5 trillion yen ($36.16 billion-$36.83 billion) in its yen-buying intervention last Friday, according to estimates from Tokyo money market brokerage firms. Japanese officials did not confirm whether the intervention had taken place.
Any action to support the yen runs contrary to the BOJ’s commitment to controlling the Japanese government’s borrowing costs and could increase pressure on it to step back on yield curve controls at its policy meeting this week.
Sterling, meanwhile, was seen in shaky business on the news that Boris Johnson had dropped out of the race for British prime minister.
Former finance minister Rishi Sunak will become Britain’s next prime minister after winning the race to lead the Conservative Party, which could ease some of the political uncertainty hanging over the pound.
Sterling was last traded at $1.12620.
“Day to day is tough. My favorite expression on all of this this morning is that it’s time to be a poker player, not a chess player. It’s about position and feeling and understanding who you’re playing against, Said Societe Generale Strategist Kit Jux.
European stocks rose on Monday, driven by hopes that the Federal Reserve could slow the pace of interest rate hikes, while investors braced for a busy week of earnings and key interest rate decisions from the European Central Bank.
The continent-wide STOXX 600 index (.STOXX) rose 1.14%.
The market price is still set for an increase of 75 basis points next month, but has withdrawn bets on a similar move in December. The peak for rates has also fallen to around 4.87%, up from 5% at the start of last week.
Fed officials, including San Francisco Fed Chair Mary Daly and St. Louis Chief James Bullard, indicated that strictures would be at the center of any policy debate at the November meeting.
“What this means for the markets is that rates and the FX market may now be more sensitive to incoming economic data and any evidence of financial market stress,” said Derek Halpeney, head of research at MUFG.
Chinese blue chips (.CSI300) dropped nearly 3%, while Hong Kong shares fell 6.4%, their biggest one-day drop since the financial crisis. The offshore yuan hit another record low against the dollar after Xi Jinping secured a third leadership term that set a precedent, electing a top governing body with loyalists. Analysts say Xi is likely to stick to his zero-COVID policy which is hurting growth.
Delayed data on gross domestic product (GDP) showed the Chinese economy grew by 3.9% in the third quarter, above forecasts of 3.5%, but retail sales disappointed with growth of 2.5%.
Investors will take a look at US GDP on Thursday and key inflation measures a day later. The economy is projected to grow at 2.1% annually in the third quarter.
The European Central Bank meets this week and is widely expected to raise rates by 75 bps.
The euro last traded at $0.98640, having briefly hit a high of $0.9899 at the start of the session.
Bank of Canada is also expected to strengthen by 75 basis points at this week’s meeting.
US Treasury yields climbed Monday as investors worried the Federal Reserve would maintain its over-aggressive stance on fighting inflation despite economic data pointing to a slowdown in US business activity in October.
The US 10-year Treasury yield traded at 4.337% from a 15-year peak of 4.127% on Friday.
In commodity markets, Brent oil futures retreated 0.06%, narrowing losses after soft data on Chinese demand. US crude fell 0.7%.
Gold fell as a stronger US dollar and yield affected the bullion’s appeal. Spot prices were down 0.04%.
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Reporting by Chris Prentiss in Washington and Amanda Cooper in London Additional reporting by Amrita Khandekar, Devik Jain and Wayne Cole Editing by Nick McPhee and Matthew Lewis
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