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Global Stocks Limited By Profit-Taking
The week's record high gains in global markets, driven by a series of dovish moves by central banks worldwide, made way for profit-taking on Friday, slowing down progress. Meanwhile, a small descent in U.S. yields undermined the US dollar's efforts to notch up an increase.
A Week Of Growth
The S&P 500, Nasdaq, and Dow reportedly opened flat to lower, seeking a clear trend. Yet, they remain poised for weekly increases. As for the MSCI World Equity Index, it dipped by 0.16% but ended the week 1.8% higher – the largest weekly improvement seen in the year so far.
CEO of IG North America and president of Tastytrade in Chicago, JJ Kinahan, suggests that a busy week could have resulted in a somewhat tired market populace. With no significant news to stir movement, the market floated around an unchanged line.
The Role of Central Banks
A surprising rate decrease by Switzerland's central bank on Thursday sparked higher market performance, prompting traders to realize that global central banks may not necessarily hold out for cut rates from the U.S. Federal Reserve to make their move.
In addition, traders found optimism in the Bank of England’s unanticipated dovish stance. They stated that the economy is "moving in the right direction" for it to initiate rate cuts.
Outlook On Interest Rates
The Federal Reserve maintained the fed funds rate between 5.25% and 5.50% on Wednesday. However, it conveyed readiness to slash rates by 75 basis points this year, despite concerns over increasing U.S. inflation and robust economic growth sufficient to potentially avoid a soft landing. The central bank reaffirmed that the recent rise in inflation doesn't alter the ongoing narrative of slowly declining price pressures.
Impact On Stock Market
On Friday, the S&P 500 saw a slight increase, while the Dow dipped and the Nasdaq Composite was on the rise. Overall, they ended the week higher.
European Market
Reflecting the global trend, Europe's STOXX 600 also dipped mildly after experiencing a record all-time high. As for London's FTSE 100, it saw an increase, spurred by the prevailing view that the Bank Of England would hasten rate cuts. The Governor Andrew Bailey characterized the expectation as not "unreasonable".
Currency and Bond Market Outlook
The dollar index saw an increase and is moving towards its best week of the year. President of Bundesbank, Joachim Nagel, noted that the chances for a rate cut by the European Central Bank before summer is increasing. This, along with other factors, has resulted in a weakening in the British pound.
Finally, the yields on benchmark U.S. 10-year notes decreased, as did the 2-year note yield. Europe's bond yields were set for a weekly decrease, with the German 10-year yield showing a marked drop.
