Stock markets climb as traders weigh interest rates outlook

Stock markets mostly moved higher on Thursday as banking sector worries eased and traders weighed central banks’ interest rate plans in the wake of recent turmoil.

Investors have taken to heart reassurances by authorities around the world that the fallout from the collapse of US regional banks and the takeover of Credit Suisse has been contained.

“Worries about the banking industry continue to ease, offering support to the broader market,” said market analyst Patrick O’Hare at Briefing.com.

Wall Street’s main indices moved higher at the start of trading. European stock markets were up in afternoon deals, while Asian markets ended the day mostly higher.

The banking flare-up has fanned speculation the US Federal Reserve will have to end its inflation-fighting rate hike campaign sooner than expected in order to avoid further destabilising the finance industry.

Some investors now predict the central bank will cut borrowing costs by the end of the year — some forecasts put the rate at just above four percent by 2024, compared with more than five prior to the recent upheaval.

That has focused eyes on the Fed’s next policy meeting, with observers predicting that could mark the last increase, even though inflation is still much higher than its target.

“The Fed remains in a very difficult position,” said Wolfe Research’s Chris Senyek.

“With banks stabilising, inflation still way above target, the labour market still historically strong, and the Fed desperately needing to rebuild credibility, our sense is that the (policy board) will hike by 25 basis points on May 3.”

US and eurozone inflation data due out Friday should provide a clearer idea of whether monetary policymakers will have more flexibility in terms of pausing rate hikes.

Data on Thursday showed inflation slowing to 7.4 percent in March in Germany, Europe’s biggest economy, down from 8.7 percent in the two previous months.

Inflation eased to 3.3 percent in Spain.

Some analysts believe the latest woes among banks, which have been blamed on sharp increases in rates, will force them to tighten access to credit which will in turn reduce the need for the Fed to hike further.

“The good news for stocks is that growth concerns have moved into the driver’s seat after the recent banking shock, where investors are now positioning for the Fed to cut and instead rely on credit tightening to tame inflation,” said SPI Asset Management’s Stephen Innes.

“Indeed, speculative money is now betting… (that) the disinflationary impulse from tighter credit will reduce the need for monetary policymakers to slow the economy through rate hikes, which could potentially even cause the Fed to cut.”

The softer outlook for future US interest rates weighed on the dollar, which was down against most of its major peers.

The weaker greenback also helped dollar-denominated oil prices reverse earlier losses.

Shares in British energy infrastructure group Petrofac soared 70 percent after it and Hitachi Energy secured a multi-billion-euro deal to expand offshore wind capacity in the Dutch-German North Sea.

The Hong Kong index rose as Alibaba extended gains after surging 12 percent Wednesday on news the Chinese tech giant intends to split into six units.

– Key figures around 1330 GMT –

New York – Dow: UP 0.5 percent at 32,888.94 points

London – FTSE 100: UP 0.6 percent at 7,611.83

Frankfurt – DAX: UP 1.0 percent at 15,476.55

Paris – CAC 40: UP 0.9 percent at 7,252.19

EURO STOXX 50: UP 1.0 percent at 4,273.99

Tokyo – Nikkei 225: DOWN 0.4 percent at 27,782.93 (close)

Hong Kong – Hang Seng Index: UP 0.6 percent at 20,309.13 (close)

Shanghai – Composite: UP 0.7 percent at 3,261.25 (close)

Euro/dollar: UP at $1.0920 from $1.0845 on Wednesday

Pound/dollar: UP at $1.2379 from $1.2316

Euro/pound: UP at 88.21 pence from 88.01 pence

Dollar/yen: DOWN at 132.78 yen from 132.85 yen

Brent North Sea crude: UP 0.7 percent at $78.85 per barrel

West Texas Intermediate: UP 1.1 percent at $73.74 per barrel

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