Market Wrap: 4 April 2023

Market Wrap: 4 April 2023

Stocks Advance as Concerns Over Rate Hikes Recede: 

  • Traders continue to bet on Fed rate cuts later this year
  • Oil rises amid short covering after OPEC+ production cut

Global stocks rose for a seventh day and US index futures erased losses amid signs central banks are in no rush to accelerate monetary tightening as they seek avoid a hard landing of the economy. 

MSCI Inc.’s benchmark for world equities climbed to the highest level since Feb. 16. Contracts on the S&P 500 Index traded 0.1% higher, while Nasdaq 100 futures were little changed. European stocks advanced to a one-month high as banks and industrial shares rallied. Crude oil rose for a second day as an OPEC+ plan for output cuts sparked short covering. Treasuries and the dollar slipped. 

Traders are overcoming their initial bearish reaction to the oil cartel’s plan and are now betting that the impact of higher crude prices on economic recovery won’t allow the Federal Reserve to speed up the pace of interest-rate hikes. The Reserve Bank of Australia’s decision to pause its tightening cycle amid concern over US banking troubles emboldened markets to stick to their forecasts for more than 50 basis points of Fed rate cuts later this year. 

“I would lean in the direction that over the course of the second half of the year, the Fed is going to have to turn more supportive,” Stephen Gallo, global FX strategist at BMO Capital Markets, said on Bloomberg Television. “Maybe not with easing in Q3, which is there’s a chance of that priced in right now by the rates market, but probably turning a bit more supportive, at least with its language.”

Rallies in banking shares underpinned gains in Japanese and European stocks Tuesday. The Stoxx 600 traded at the highest level since March 9 as the banking subgroup led by BNP Paribas SA contributed 22% of the gauge’s increase. Glencore Plc rose amid a recovery in copper prices, while L’Oréal SA rose after agreeing to acquire cosmetics brand Aesop.

In the US, while the Fed’s monetary path remains a key concern, investors are turning their attention to upcoming earnings releases. The latest reporting season is yet to pick up steam, though 14 of the 15 companies in the S&P 500 that have announced results so far have beaten estimates. Investors will be watching whether US corporate performance improves after a relatively sluggish prior quarter when only 69% of companies managed to surpass expectations.

Oil built on Monday’s largest gain in a year after OPEC+ delivered an unexpected and substantial production cut in a shift that tightened the global crude market. Short sellers who had expected the group to hold its production levels rushed to cover their positions, pushing both West Texas Intermediate and Brent futures by 0.4% each.

Yields on Australia’s policy-sensitive three-year government bond dropped about eight basis points following the central bank’s decision to pause its almost yearlong tightening cycle amid signs of moderating inflation and uncertainty over the economic outlook.

Treasury yields rose across the curve, with the policy-sensitive two-year rate adding 3 basis points. The dollar was little changed, while the euro and pound gained. The shared currency headed for a two-month high.

In the US, Federal Reserve Bank of St. Louis President James Bullard told Bloomberg Television that OPEC+’s decision to cut output was unexpected and an increase in oil prices could make the Fed’s job of lowering inflation more challenging. “Whether it will have a lasting impact I think is an open question,” he said.

Fed Governor Lisa Cook said Monday US inflation has started easing but price pressures could keep emanating from a tight labor market, the war in Ukraine and the reopening of China.


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