Global stocks rose on Friday, with the tech-heavy Nasdaq Composite heading for its strongest quarter since 2020 as investors rolled back their expectations for interest rate rises.
The Nasdaq index climbed 1.2 per cent in mid-afternoon trading, bringing its gains for the first three months of the year to 16.1 per cent. That would be its strongest quarter since the second quarter of 2020, when tech stocks rebounded sharply from a drop at the start of the coronavirus pandemic.
The broader S&P 500 was also lifted by the strength in tech, adding 0.9 per cent on Friday to bring its quarterly gains to 6.5 per cent.
Stock markets have held up despite concerns about the health of the banking sector following the collapse of Silicon Valley Bank and other lenders in March. SVB’s failure and the subsequent fallout — including the forced merger of Credit Suisse and UBS — has convinced investors that the US Federal Reserve will not keep raising interest rates to fight inflation, boosting shares in large tech stocks heavily weighted in the benchmark indices.
Lower interest rates increase the appeal of companies that promise long-term growth. Mega-cap groups such as Microsoft and Apple are also seen as less exposed to a potential downturn in bank lending if difficulties in the regional banking sector continue.
Fresh data released on Friday strengthened investor confidence about the outlook for rates. The core personal consumption expenditures index — the Fed’s preferred measure of inflation — softened in February to a year-on-year rise of 4.6 per cent, slightly lower than consensus forecasts.
Myles Bradshaw, head of global aggregate strategies at JPMorgan Asset Management, said the market “now sees rates as already having peaked and anticipates rate cuts by year-end”.
US government bond markets were fairly steady on Friday, with the yield on the policy-sensitive two-year Treasury inching down 0.01 percentage points, to 4.09 per cent. The 10-year yield declined 0.05 percentage points, to 3.50 per cent. Bond yields fall when prices rise.
The dollar index, which measures the US currency against a basket of six peers, strengthened 0.4 per cent.
Shares in Digital World Acquisition Corp, the blank-cheque company that plans to take Donald Trump’s media outfit public, rose 6 per cent a day after the former US president was indicted in New York.
Europe’s region-wide Stoxx 600 rose 0.6 per cent after eurozone inflation fell more than expected, leaving the index up 6.7 per cent for the quarter.
Germany’s Dax, which is up more than a tenth since the start of the year, rose 0.6 per cent, while London’s FTSE 100 closed up 0.15 per cent.
Europe’s harmonised index of consumer prices slowed from 8.5 per cent in February to 6.9 per cent in the year to March as energy costs receded. Economists had expected prices to rise 7.1 per cent.
Analysts said the figures were unlikely to deter the European Central Bank from raising rates by a quarter percentage point to 3.25 per cent when it next meets on May 4.
The yield on the two-year German Bund slipped 0.06 percentage points at 2.67 per cent.
Asian equities also advanced on Friday, buoyed by stronger than expected economic data in China. Hong Kong’s Hang Seng index added 0.4 per cent, and China’s CSI 300 rose 0.3 per cent. South Korea’s Kospi and Japan’s Topix each advanced 1 per cent.
Activity in China’s non-manufacturing sectors grew at its fastest rate in more than a decade in March as business confidence rocketed and demand grew steadily, according to a closely watched official gauge.
“This strength won’t be sustained indefinitely, however,” said Julian Evans-Pritchard, head of China economics at Capital Economics. Much of the immediate boost from dismantling Covid-19 restrictions has “already passed” and the recovery is “likely to moderate over the coming months”, he said.
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