US and European stocks rose on hopes the Fed will slow the pace of interest rate hikes

WASHINGTON/LONDON (Reuters) – U.S. stocks extended their rally last week and European stocks rose on Monday as signs of a slowing U.S. economy raised hopes that the Federal Reserve would slow the pace of interest rate hikes.

Dow Jones Industrial Average (.DJI) The S&P 500 Index is up 1.34% (.SPX) Gain 1.19% and the Nasdaq Composite Index (nineteenth) Added 0.86%.

The high-tech Nasdaq has recovered after being hit by the Tesla plunge (TSLA.O) Traders are also looking forward to Apple’s earnings in the coming days (AAPL.O)Alphabet Alphabet (GOOGL.O) and Amazon.com (AMZN.O).

US business activity contracted for the fourth consecutive month in October, indicating that the Federal Reserve’s barrage of sharp interest rate increases is having the needed effect, raising hopes that the central bank may begin to slow the pace of increases in the federal funds rate. Read more

“Investors are growing more confident that inflation will come down and that the Federal Reserve may rush to a halt,” said Edward Moya, chief market analyst at OANDA in New York. “The flash PMI data (the PMI data) showed significant weakness in both the services and manufacturing parts of the economy, which is good news for investors anticipating a pause in the Fed early next year.”

The dollar survived another suspected Japanese intervention to rally against the yen, and rose to 149.70 yen in early trading before retreating. Japan likely spent 5.4 trillion – 5.5 trillion yen ($36.16 billion – $36.83 billion) in its yen-buying intervention last Friday, according to stock market brokerages in Tokyo. The Japanese authorities have not confirmed whether or not there was an intervention.

The British pound swung in choppy trade after news that Boris Johnson has withdrawn from the British Prime Minister’s bid. Finance Minister Rishi Sunak will become Britain’s next prime minister after winning the race to lead the Conservative Party, which could ease some of the political uncertainty hanging over the British pound.

European STOXX 600 Index (.stoxx) It finished up 1.4% at its highest level in nearly a week, with the utilities (.SX6P)The media (.SXMP) travel and entertainment (.sxtp) Sectors driving gains.

Markets are still set for a 75 basis point rate hike next month, but they scaled back bets on a similar move in December. Peak prices have also fallen to around 4.87%, from above 5% early last week.

Fed officials indicated that the pace of tightening would be at the center of any policy discussion at the November meeting.

Chinese blue chips (.CSI300) It fell nearly 3%, while Hong Kong shares fell 6.4%, their biggest one-day drop since the financial crisis. The offshore yuan hit another record low against the dollar after Xi Jinping secured an unprecedented third term of leadership, selecting a supreme governing body filled with loyalists. Analysts say Xi is likely to stick to his policy of not spreading the novel coronavirus, which is detrimental to growth.

Late GDP data showed that China’s economy grew 3.9% in the third quarter, above expectations of 3.5%, but retail sales disappointed, rising 2.5%.

Investors will take a look at the US GDP on Thursday and core inflation measures the following day. The economy is expected to grow at an annualized rate of 2.1% in the third quarter.

The European Central Bank meets this week and is widely expected to raise interest rates by 75 basis points.

The euro was last traded at $0.98640, after briefly reaching $0.9899 early in the session.

The Bank of Canada is also expected to tighten the noose by 75 basis points at its meeting this week.

In the Treasury markets, traders shrugged off the slowdown in business activity data, remaining concerned that the Fed would maintain its hawkish stance on fighting inflation. Yields soared.

The 10-year US Treasury yield was trading at 4.2508%, from a 15-year high of 4.337% on Friday.

In commodities, gold prices were under pressure from a strong dollar and rising US bond yields. US gold futures are stable

Brent crude futures settled at $93.26 a barrel, down 0.3%, and US West Texas Intermediate crude closed 0.6% lower at $84.58 on data due to weak demand from China and a stronger US dollar.

Covering by Chris Prentice in Washington and Amanda Cooper in London Additional reporting by Amruta Khandekar, Devik Jain and Wayne Cole Editing by Nick McPhee, Will Dunham and Matthew Lewis

Our criteria: Thomson Reuters Trust Principles.