* Graphic: World FX rates http://tmsnrt.rs/2egbfVh
* Graphic: Global asset performance http://tmsnrt.rs/2yaDPgn
* European stocks gain 0.2%; S&P 500 futures up 0.1%
* Dollar slips as Treasury yields touch 7-month lows
* Gold strikes a record close, oil eyes Red Sea news
LONDON/SYDNEY, Dec 28 (Reuters) – World shares gained on
Thursday as market wagers on ever-more aggressive interest rate
cuts stretched a rally in U.S. stocks and bonds, while the
dollar fell to five-month lows.
European shares added 0.2% to approach a 23-month
high hit two weeks ago, and were on course for gains of about
13% this year.
Wall Street was set for gains, too, with S&P 500 futures
up 0.1% to another record high and Nasdaq futures
firming 0.2%.
The S&P 500 has climbed 14% in just two months to come
within a whisker of its all-time closing peak, while its price
to earnings ratio is up by a quarter on the year at 24.0.
The MSCI world equity index, which tracks
shares in 47 countries, gained 0.3%.
An absence of major news has not stopped investors from
ramping up bets on rapid-fire rate cuts next year from the
Federal Reserve.
Futures now imply an 88% chance of a rate cut as
early as March, a huge swing from a month ago when the
probability was just 21%.
The market has about 157 basis points of easing priced in
for 2024, and sees rates reaching 3.00-3.25% over 2025.
“The rapid decline in inflation is likely to lead the Fed to
cut early and fast to reset the policy rate from a level that
most participants will likely soon see as far offside,” wrote
analysts at Goldman Sachs in a note.
“We expect three consecutive 25bp cuts in March, May, and
June, followed by one cut per quarter until the funds rate
reaches 3.25-3.5% in 2025 Q3. Our forecast implies 5 cuts in
2024 and 3 more cuts in 2025.”
Germany’s 10-year bond yield was steady near its lowest in
more than a year.
Earlier, MSCI’s broadest index of Asia-Pacific shares
outside Japan added another 1.5%, to be up about
11% in two months and at its highest since August.
BOND BULGE
Yields on 10-year Treasury notes stood at
3.812%, having hit a five-month low overnight. The two-year
yield was down at 4.273%, having been as high as
5.295% as recently as October.
The falls weighed broadly on the U.S. dollar and lifted the
euro to its highest since July at $1.1129. The single
currency was last at $1.1115, having gained 2% so far this month
to within sight of its 2023 top of $1.1276.
The dollar index, which measures the U.S. currency
against six rivals, fell to a fresh five-month low of 100.76.
The index is on course for a 2.6% decline this year, snapping
two straight years of strong gains.
Sterling reached a five-month top of $1.2816, after
cracking resistance at $1.2794 overnight.
“Investors are placing more weight on Fed expectations
driving currencies, than the signalling from other central banks
like the ECB,” said Alan Ruskin, global head of G10 FX strategy
at Deutsche Bank.
“In part, that’s because the Fed also has more impact on the
overall global risk environment, which has become more risk
friendly and thereby also less USD positive.”
The dollar also lost ground to the yen at 140.995 yen
, having shed 4.7% for the month so far. It is still up
sharply for the year as the Bank of Japan takes a glacial
approach to tightening its super-easy policies.
In an interview published on Wednesday, BOJ Governor Kazuo
Ueda said he was in no rush to unwind those loose policies as
the risk of inflation running well above 2% and accelerating was
small.
Oil prices, which slid on Wednesday, remained subdued as
concerns over supplies eased after major shippers announced they
would return to the Red Sea.
Brent edged up 10 cents to $79.85 a barrel, while
U.S. crude fell 5 cents to $74.14 per barrel.
(Reporting by Tom Wilson in London and Wayne Cole in Sydney;
Editing by Edwina Gibbs, Sam Holmes and Christina Fincher)
