Dollar falls as global stocks anticipate their strongest month since late 2020

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Last Updated on July 29, 2022 by Bitfinsider

Global equities increased on Friday, on track to have their best month since late 2020, after euro zone GDP exceeded forecasts. The dollar declined, though, as investors awaited new U.S. data points for hints about the direction of interest rates.

Riskier markets like stocks have a tendency to respond favorably to any perceived easing in attitude on the part of policymakers as inflation soars across major markets and central bankers struggle to hike rates without killing off growth.

After data on Thursday revealed that the U.S. economy shrank in the second quarter, equities increased on speculation that interest rates will increase more gradually. While the Friday Euro Zone data exceeded expectations, recession concerns are growing as energy inflation continues to bite in the light of the Ukraine war.

Amid broad advances across European markets, including the STOXX Europe 600’s 0.9% increase, the MSCI World index was last up 0.3%, on pace for a gain of about 6% monthly, its biggest since November 2020.

U.S. equities appear to be headed for a gain at the opening bell, with futures for the S&P 500 and Nasdaq up 0.8% and 1.1%, respectively. All eyes will be on new data on wages and consumer prices for indicators of the state of the economy.

Mark Haefele, chief investment officer at UBS Global Wealth Management, advised investors to exercise caution despite the excellent month-end performance for stocks.

After a high-level Communist Party conference, Beijing failed to mention its full-year GDP growth target, prompting some of that fear to surface in Asian financial markets overnight.

The largest MSCI index of Asia-Pacific shares outside of Japan decreased by 0.3%.

The dollar and the country’s bond yields were both negatively impacted by the prior session’s news that the U.S. gross domestic product had contracted by 0.9% last quarter, on top of a 1.6% decline in the quarter before that. However, both markets made some progress on Friday.

The yield on benchmark 10-year Treasury notes slightly increased from its overnight lows to trade at 2.7029%, while the yield on the two-year note, which normally moves in tandem with interest-rate forecasts, was at 2.8703%.

The dollar was recently down 0.4% against a basket of its major counterparts after earlier flirting with positive territory, but it is still on track to post gains for a second consecutive month.

The Federal Reserve will decrease interest rates by about 50 basis points next year to support slowing growth, according to futures markets, who now forecast that U.S. interest rates will peak by December this year rather than June 2023.

In contrast to the deteriorating U.S. economy, the euro zone’s second-quarter GDP figures exceeded forecasts, increasing by 0.7%, even though Germany’s economy, the region’s largest, grew less quickly than anticipated.

In response, the benchmark 10-year bond rate for the euro zone—which is set by Germany—was recently up at 0.89 percent.

In the commodities market, Brent crude futures and U.S. West Texas Intermediate crude extended early gains and were last up about 2.3% as supply deficit worries ahead of the next OPEC ministers meeting countered concerns about the outlook for the economy.

The weaker dollar helped gold trade up 0.4% to $1,759 an ounce after giving up some of its early gains.


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Disclaimer: The views and opinions expressed by the author, or any people mentioned in this article, are for informational purposes only, and they do not constitute financial, investment, legal, tax or other advice. Investing in or trading cryptocurrency or stocks comes with a risk of financial loss.

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