Investors piled into stocks and bonds on Thursday as they seized on signs that interest rates are nearing a peak on both sides of the Atlantic.
Stocks on Wall Street hit their highest level since August, while government bonds in Europe staged their biggest one-day rally in years.
The gains came after the Bank of England joined the Federal Reserve, indicating that a series of aggressive rate hikes over the past year are nearing an end.
While the BoE’s half-point interest rate hike was widely expected, it abandoned earlier guidance that it would continue to act “vigorously” to control inflation.
In contrast, European Central Bank President Christine Lagarde vowed to “stay the course” as her institution raised interest rates by half a point, having promised to do the same in March. But Lagarde also emphasized that future rate decisions will depend on upcoming economic data.
“While we are now on a victory lap for markets, it looks like a consolidated ‘light at the end of the tunnel’ signal from central banks,” said Charlie McIlcott, analyst at Nomura.
“The market has voted with its feet, the train has left the station, more speculative products are exploding, bond yields are falling,” he added. “[Central banks] They threw petrol on the fire”.
In the US, the S&P 500 rose 1.3 percent and the Nasdaq Composite gained 3.1 percent. Europe’s Stoxx 600 rose 1.4 percent and Germany’s Dax rose 2.2 percent.
Government bonds also rose sharply. The yield on the 10-year German bond, the regional benchmark, fell 0.22 percentage points to 2.07 percent, reflecting higher inflation. The yield on riskier Italian 10-year bonds fell 0.4 percentage points to 3.90 percent. U.S. Treasuries extended a rally that started on Wednesday after Jay Powell said “inflation has kicked in for the first time” in consumer goods. Markets are interpreted as a dovish The signal from the Fed’s chair pushed the 10-year yield to its lowest level since September.
In the UK, traders expect the BoE’s next rate hike to be its last, with borrowing costs expected to peak at 4.25 percent by August. In the eurozone, markets expect rates to hit 3.25 percent in the summer, up from the current level of 2.5 percent.
“Markets want to rally and are getting very bullish, looking at anything a little hawkish,” said Matthew Rees, head of global bond strategies at Legal & General, said by officials from the three central banks.
The dollar index, which tracks the U.S. currency against a basket of six currencies, traded 0.4 percent higher on Thursday, falling more than a tenth as the pace of interest rate hikes slowed over the past three months.
In Asia, Hong Kong’s Hang Seng index fell 0.5 percent, China’s CSI 300 fell 0.3 percent and Japan’s Nikkei rose 0.2 percent.
