In the realm of global finance, Friday witnessed a significant surge in European stocks, outpacing their counterparts on Wall Street. This remarkable rally was predominantly fueled by robust demand for shares of export-oriented companies, as major currencies across Europe weakened against a resurgent US dollar. The Stoxx share index in Europe, representing a broad spectrum of equities, surged by an impressive 1% during the early hours of trading. This uptick was largely attributed to the favorable dynamics of exchange rates, which bolstered the value of exporters’ earnings denominated in dollars. Similarly, London’s FTSE 100 index experienced a notable uptrend, climbing by 0.8% on the back of strong performances from global mining and oil stocks.
However, the futures markets painted a different picture for Wall Street, as they indicated a subdued opening for the S&P 500 share index later in the day. The index, which was poised for its second consecutive weekly decline, was expected to open flat. Meanwhile, MSCI’s all-country equity index remained steady, signaling its second straight week of decline following mid-week consumer price data that prompted traders to recalibrate their expectations regarding US interest rate cuts. Market pricing suggested that investors now anticipate the Federal Reserve to implement fewer than 50 basis points of rate cuts this year, a significant departure from earlier expectations of around 150 basis points.
Analysts noted that recent economic data had diverged from the Fed’s initial projections, particularly concerning inflation trends, leading to heightened uncertainty regarding the central bank’s rate-cutting trajectory. The US dollar index, reflecting the currency’s performance against a basket of major peers, hovered near a five-month high, bolstered by a nearly 1% gain throughout the week. Meanwhile, the Japanese yen touched a 34-year low against the dollar, sparking speculation about potential intervention by Japanese authorities to support the faltering currency.
The prevailing concerns about monetary policy divergence between the European Central Bank (ECB) and the Bank of England (BoE) further weighed on the euro and sterling. The ECB signaled its intention to lower its main deposit rate from a record 4% in June, while the BoE’s monetary policy outlook remained uncertain. Consequently, both the euro and sterling depreciated to five-month lows against the dollar, reflecting market apprehensions about the future direction of monetary policy in Europe.
While the Federal Reserve adopted a cautious stance on rate cuts, European bond investors exhibited less optimism about potential ECB cuts. Despite questions about the likelihood of ECB easing in June, economists cautioned against straying too far from Fed policy. Nonetheless, long-term US Treasury yields remained near a five-month high, reflecting market expectations of reduced interest rate gains.
In other market developments, Asian equities outside Japan witnessed a decline of 1%, while gold surged to a record high of $2,395.29 amidst geopolitical tensions. Crude oil prices rose following Iran’s announcement of retaliation for a suspected Israeli airstrike on its embassy in Syria, with Brent crude futures climbing by 0.8% to $90.43 a barrel and US West Texas Intermediate crude futures gaining 0.9% to $85.79.