Stocks rally, U.S. yields flat on hopes for central banks pause

NEW YORK, Feb 2 (Reuters) – A gauge of global stocks climbed for a third straight day and longer-dated U.S. Treasury yields were flat on Thursday, as policy announcements from a host of central banks added to optimism that the cycles of interest rate hike cycles may be near an end.

After the U.S. Federal Reserve raised rates by 25 basis points (bps) on Wednesday, as was widely expected, markets rallied following comments from Fed Chair Jerome Powell acknowledging the “disinflationary” process may have begun.

The European Central Bank (ECB) and Bank of England (BoE) hiked by 50 basis points each on Thursday, with the BoE signaling the tide was turning against inflation and the ECB indicating at least one more hike was on the horizon.

On Wall Street, the S&P 500 and Nasdaq rallied, with the S&P 500 touching its highest intraday level since Aug. 26 and the Nasdaq hitting its highest since Sept. 12, getting an additional boost from a 27.06% surge in Facebook parent Meta Platforms Inc (META.O) following its quarterly results and $40 billion buyback announcement.

“The market has a different outlook. Judging from past forecasts, the Fed is pretty awful. Also, the Fed knows the economy is slowing but Fed Chairs never come out and say these things,” Steven Blitz, Chief U.S. Economist at TS Lombard told the Reuters Global Markets Forum.

“So the market sees through this, and after being fooled in 2021 into believing no hikes into 2024 and they are not as readily willing to be fooled into believing no cuts until 2024.”

The Dow Jones Industrial Average (.DJI) fell 37.98 points, or 0.11%, to 34,054.98 while the S&P 500 (.SPX) gained 68.63 points, or 1.67%, to 4,187.84 and the Nasdaq Composite (.IXIC) added 426.53 points, or 3.61%, to 12,242.85.

On the economic front, weekly initial jobless claims dropped to a nine-month low, showing the labor market remains strong, while worker productivity in the fourth quarter accelerated. Investors will eye the January payrolls report on Friday for further signs of labor market strength.

After the closing bell, earnings from heavyweights Apple Inc (AAPL.O) and Amazon.com Inc (AMZN.O) are scheduled to be released. With 46% of the S&P 500 having reported results, earnings for the quarter are expected to decline from the year-ago period, according to Refinitiv data, compared with a 1.6% expected decline at the start of the year.

European stocks also jumped, with the STOXX 600 closing at its highest level since April 21 as it notched its biggest one-day percentage gain in a month.

The pan-European STOXX 600 index (.STOXX) rose 1.35% and MSCI’s gauge of stocks across the globe (.MIWD00000PUS) gained 1.31%. The MSCI index hit its highest intraday level since May 5 and was on track for its ninth gain in the past ten sessions.

Benchmark 10-year notes were unchanged to 3.398% after yields earlier had moved lower.

The dollar bounced, however, from its biggest one-day percentage drop in nearly a month on Wednesday, while the euro also weakened following the ECB announcement.

The dollar index rose 0.674%, with the euro down 0.64% to $1.0919.

The Japanese yen strengthened 0.34% versus the greenback at 128.51 per dollar, while sterling was last trading at $1.2249, down 1.03% on the day.

In commodities, oil prices were slightly higher, with U.S. crude recently rose 0.37% to $76.69 per barrel and Brent at $82.99, up 0.18% on the day.

Reporting by Chuck Mikolajczak; additional reporting by Karen Brettell and Lisa Pauline Mattackal; editing by Jonathan Oatis and Chizu Nomiyama