Global Stock Markets Rise After Fed and ECB Rate Hikes, Dollar Strengthens Sharply

Last week, global stock prices significantly increased as investors hope that the cycle of interest rate hikes by central banks will soon come to an end, allowing economies to avoid recession.

On Wall Street, the Dow Jones fell by 0.15 percent to 33,926 points, while the S&P 500 jumped by 1.6 percent to 4,136 points, and the Nasdaq index rose by 3.3 percent to 12,006 points.

The rise of the S&P 500 and Nasdaq indices to their highest levels in nearly five months is primarily attributed to investors’ hopes that the end of the interest rate hike cycle is near.

As expected, the U.S. central bank raised key interest rates by 0.25 percentage points on Wednesday, to a range of 4.50 to 4.75 percent, marking a new high since 2007.

This is already the eighth rate hike since March last year when the Fed began its battle against inflation.

Although this was anticipated, investors were encouraged by Fed Chairman Jerome Powell’s statement at the press conference that for the first time it can be said that the process of disinflation, or slowing inflation rates, has begun.

He also stated that he expects a slight, yet positive economic growth this year, which means that a recession could be avoided.

Although Powell mentioned that it is too early to declare victory over inflation and announced further rate hikes, when asked by reporters if it is possible that the final Fed rate will remain below 5 percent, he replied that it is possible.

This encouraged investors, considering that Fed officials usually indicate that rates will need to be raised above 5 percent, while the money market estimates that the final rate, or the rate at which the Fed would conclude the process of increasing the cost of money, could be 4.9 percent.

Surprising Employment Data

As a result, stock prices rose sharply on Wednesday and Thursday, but fell significantly on Friday.

Investors were shaken by the data showing that in January, the number of employed in the U.S. increased by 517,000, while analysts expected only about 187,000. The unemployment rate, on the other hand, fell to 3.4 percent, while an increase to 3.6 percent was anticipated.

This data raised questions about market estimates regarding further Fed rate hikes.

– The employment report was a significant surprise and raised many questions about what the Fed will do next. This caused market instability – says Kristina Hooper, an analyst at Invesco.

Investors were also focused on corporate earnings, which are under pressure due to high inflation and slowing economic growth.

So far, more than half of the companies in the S&P 500 index have reported, most of which achieved higher profits than expected.

However, analysts in a Reuters survey estimate that corporate profits have declined year-on-year.

Present Optimistic Sentiment

European stock prices also rose last week. The London FTSE index strengthened by 1.75 percent to a record 7,901 points, while the Frankfurt DAX rose by 2.15 percent to 15,476 points, and the Paris CAC increased by 1.9 percent to 7,233 points.

Markets are experiencing an optimistic sentiment as a series of macroeconomic data supports hopes that the eurozone economy could avoid recession.

Additionally, investors hope that the cycle of interest rate hikes by the European Central Bank will soon come to an end, which raised key rates by 0.50 percentage points last week and announced another such increase in March. The Bank of England also raised rates by 0.50 percentage points last week.

On global markets, the value of the dollar against a basket of currencies increased last week. The dollar index, which shows the movement of the U.S. dollar against the other six major world currencies, strengthened by one percent last week to 102.99 points.

At the same time, the dollar strengthened by 0.6 percent against the European currency, causing the euro price to slide to 1.0795 dollars. The dollar exchange rate against the Japanese currency also rose by 1 percent to 131.20 yen.

As a result, the dollar index, for the first time in nine months, dipped below the level of 101 points. Meanwhile, the euro exchange rate, for the first time in nearly 10 months, broke above the level of 1.10 dollars.

The euro exchange rate remained around that level until Friday, when the dollar strengthened sharply, causing its index against a basket of currencies to jump to nearly 103 points.