Stocks jump, dollar falls; investors bet Fed may be done hiking rates

Stocks jump, dollar falls; investors bet Fed may be done hiking rates

Global stock indexes rallied and the US dollar fell on November 2 on investor optimism that the Federal Reserve may be done hiking interest rates, while benchmark 10-year Treasury yields fell to three-week lows.

Investors also assessed Thursday's actions by the Bank of England, which kept rates at a 15-year high and stressed that it did not expect to start cutting them any time soon.

The Fed on November 1 held interest rates steady as expected, and while Chair Jerome Powell left the door open to more tightening he also nodded to the impact of a recent surge in bond yields on the economy.

Even though neither the Fed nor the BoE signalled that rate cuts were likely any time soon, just the glimpse of light at the end of the tunnel after 20 months of relentless hiking was enough to recharge the bulls.

Bond yields extended their move lower from Wednesday on relief that the U.S. Treasury Department announced smaller-than-expected increases in longer-dated Treasury supply.

Benchmark 10-year notes yields were last down 15 basis points at 4.645% after touching 4.626%, the lowest since Oct. 13. They were on track for their biggest one-day yield drop since March.

In stocks, the Dow Jones Industrial Average rose 389.08 points, or 1.17%, to 33,663.66, the S&P 500 gained 62.04 points, or 1.46%, to 4,299.9 and the Nasdaq Composite added 176.79 points, or 1.35%, to 13,238.25.

The pan-European STOXX 600 index rose 1.77% and MSCI's gauge of stocks across the globe gained 1.71%.

The moves follow sharp gains overnight in Japanese stocks.

In foreign exchange, the U.S. dollar was broadly lower on the perception that U.S. rate had peaked, raising risk appetite.

Brad Bechtel, global head of FX, at Jefferies in New York, said the Fed is probably done hiking rates, but he could see the rationale for tightening one more time given the still-resilient U.S. economy.

"But at the same time, everyone is looking at a slowdown and inflation is going in the right direction," Bechtel said.

Markets now see a below-20% chance that U.S. rates will rise in December.

Sterling, meanwhile, held firm after the BoE decision. The pound rose as much as 0.6% against the dollar to $1.2225, its highest level in 1-1/2 weeks. It was last up 0.2%.

The dollar index, which measures the greenback against six other major currencies, was last 0.2% lower at 106.25.

Bitcoin, sometimes traded as a proxy for risk-taking, broke above $35,000 to hit its highest level since May 2022.

Investors are keenly awaiting results from Apple, due after the closing bell. Apple, a bellwether for consumer demand and the tech sector, is expected to report a 1% decrease in quarterly revenue.

Also, U.S. non-farm payrolls data is due out on Friday. A tight labor market is considered a key factor in the outlook for interest rates.