On Tuesday, a global gauge of shares recorded its biggest percentage gain in a day after almost a month, while the US dollar declined for the third consecutive session. This was after a rise in expectations for the European Central Bank to hike interest rates more than expected in Thursday’s meeting.
Interest rate hike
A report from Reuters indicated that the European Central Bank (ECB) was contemplating a bigger-than-expected rate hike of 50 basis points on Thursday giving the euro a boost. This was double the rate hike that had already been priced in and put the single currency on track for its biggest percentage rise in a single day in almost two months.
As for the US Federal Reserve, expectations of a super-sized rate hike of 100 basis points in its policy meeting next week eased. This saw the US dollar come down for three days consecutively after it had hit a high of two decades in the previous week.
The euro recorded 0.81% gains to reach $1.0223, while the US dollar index fell by 0.661%. Market analysts said that the trans-Atlantic monetary policy was recording a subtle, yet meaningful shift and that was benefitting the euro.
There was a broad rally seen in Wall Street stocks, as they joined their European peers, with every single one of the 11 sectors of the S&P 500 rising, as the corporate earnings season in the US heats up. However, there was a 1.46% drop in the shares of Johnson & Johnson, after the company posted results better than expectations, but reduced its outlook for the full year because of a stronger dollar.
Market analysts said that the expectations of a rate hike of 100 basis points from the Fed had come down to 75 basis points and there was also a weakening in the dollar. The ECB could also hike interest rates by 50 basis points instead of the 25 bps expected earlier. Therefore, it was not surprising that with the dollar declining, the stock market was in an upbeat mood.
They said that if the odds of an economic recession come down in the next few months, then the dollar would continue to drop and this would be a tailwind for multinational firms.
Performance of indexes
There was a 2.43% increase in the Dow Jones Industrial Average, as it rose by 754.44 points to 31,827.05. A 2.76% gain in the S&P 500 took it up by 105.72 points to reach 3,936.57, while a 3.11% gain in the Nasdaq Composite saw it add 353.10 points to hit 11,713.15.
The Nasdaq recorded its biggest percentage gain in a single day since June 24th, while the S&P 500 ended the day at its highest level after June 9th. On Tuesday morning, there were 48 S&P 500 companies that had already reported their earnings. Of this total, about 89.2% of the companies had beaten expectations.
The economic data showed that the Fed rate hike was taking its toll on the real estate sector.