MSCI’s global index of stocks rose on Thursday to its highest level since April 2022 after strong U.S. economic data, but the dollar slid following the European Central Bank’s interest rate increase a day after the Federal Reserve paused its hikes.
While U.S. jobless claims were higher than expected, retail sales unexpectedly rose in May as consumers stepped up purchases of motor vehicles and building materials, which could help to stave off a recession in the near term.
The euro hit a 15-year peak against the Japanese yen and a five-week high against the dollar after the ECB lifted interest rates to a two-decade high of 3.5% and eyed more hikes ahead.
Equities trading had been choppy on Wednesday after the Fed signaled it could follow its June pause with two more rate increases this year. But on Thursday afternoon the S&P 500 and the Nasdaq were rallying sharply and registered their highest closing levels in roughly 14 months.
Higher jobless claims helped fuel bets that the Fed would not follow through with more rate hikes. This, combined with higher-than-expected retail sales, looked like “the ingredients for a soft landing” for the U.S economy, said Irene Tunkel, chief US equity strategist at BCA Research.
“It’s almost like a sweet spot,” Tunkel said, also pointing to Chinese data boosting energy stocks and oil prices. “So, sentiment-wise the mood is positive.”
The Dow Jones Industrial Average rose 428.73 points, or 1.26%, to 34,408.06, the S&P 500 gained 53.25 points, or 1.22%, to 4,425.84 and the Nasdaq Composite added 156.34 points, or 1.15%, to 13,782.82.
Canada’s main stock index edged higher on Thursday as a rally in oil prices boosted energy shares, but the market’s advance was much less than on Wall Street, adding to its underperformance this year.
The Toronto Stock Exchange’s S&P/TSX composite index ended up 12.26 points, or 0.1%, at 20,027.35, its fourth straight day of gains.
“Today’s market action is a perfect example that the TSX is being left behind by this massive rally in the U.S. that is largely being fueled by the AI-related stocks,” said Elvis Picardo, portfolio manager at Luft Financial, iA Private Wealth.
“I would certainly like to see the market breadth broaden out a little bit.”
The Toronto market has gained 3.3% since the beginning of the year compared to a gain of 15.3% for U.S. benchmark the S&P 500.
The TSX’s energy sector rose 0.8% on Thursday as oil settled 3.4% higher at $70.62 a barrel after data showed a jump in refinery runs in top crude importer China.
Heavily-weighted financials also gained ground, rising 0.4%, while shares of First Quantum Minerals Ltd climbed 7.6% after a report saying the copper miner rejected an informal takeover offer from Barrick Gold Corp.
In contrast, utilities lost 0.8% and real estate ended 0.5% lower. The decline for real estate came as data showed housing starts tumbling 23% in May compared with the previous month.
MSCI’s gauge of stocks across the globe gained 1.01%.
But the dollar index, measuring the greenback against major currencies, fell 0.787%, with the euro up 1.06% to $1.0946 after earlier hitting a high of $1.09520.
The Japanese yen weakened 0.11% versus the greenback at 140.24 per dollar, while Sterling was last trading at $1.2782, up 0.96% on the day.
“Beyond the near-term outlook for rates, the U.S. dollar may be looking at a somewhat more challenging environment. The global monetary policy cycle is approaching its end game,” said Shaun Osborne, chief FX strategist, said at Scotiabank in Toronto adding that the rate-cycle peak would be negative for the dollar as it would boost appetites for riskier bets.
U.S. Treasury yields were lower as investors digested the economic data and the Fed’s update.
Benchmark 10-year notes were down 8 basis points to 3.718%, from 3.798% late on Wednesday. The 30-year bond was last down 3.9 basis points to yield 3.8421% while the 2-year note was last was down 6.5 basis points to yield 4.6418%.
In commodities, oil prices rose more than 3% as the dollar weakened and data showed a jump in refinery runs in top crude importer China, though a weak economic backdrop capped gains.
U.S. crude settled up 3.44% at $70.62 per barrel and Brent was at $75.67, up 3.37% on the day.
Gold prices rose from a three-month low as the dollar and bond yields fell after U.S. economic data.
Spot gold added 0.8% to $1,958.04 an ounce. U.S. gold futures gained 0.15% to $1,958.30 an ounce.
Reuters