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In light of the Fed's hawkish announcements, traders are betting on tighter monetary policy in the US. So, US stocks are approaching a fresh all-time high. At the same time, yields of US Treasuries are sliding.
The S&P 500 index received a boost from stocks of high-tech and retail companies. Besides, the Nasdaq has been extending growth for 9 days straight. This is the longest winning streak since December last year. Semiconductor manufacturing giant Qualcomm presented an optimistic forecast. It means that the crisis in the chips manufacturing is ebbing away. Yields of US Treasuries with short maturity have sharply dropped this year. Global investors revised prospects of monetary policy in the UK as the Bank of England defied expectations at the latest policy meeting. The regulator put interest rates on hold.
A few weeks before the Bank of England's policy meeting, traders were speculating that the British regulator would be the first to raise borrowing costs since the pandemic outbreak. The Bank of England unveiled its policy decisions next day after Jerome Powell announced the beginning of tapering bond purchases. At the press conference, Jerome Powell said that Fed's policymakers are going to be patient about increasing interest rates. So, before the meeting futures on the federal funds rate, which track short-term interest rate expectations, used to price in a quarter-point tightening by the Federal Reserve in late 2022. Now market participants are betting on the first rate hike not until 2023.
Marc Cuban, the head of the Bank of America Global Research and famous investors said that the volume of growing bets on a US interest rate hike in 2022 is now dwindling. Traders are not so confident in this scenario in light of the Bank of England's policy update.
On Thursday, the US Labor Department reported that unemployment claims contracted last week to the lowest level since March 2020. It means that US employers lay off fewer people amid growing demand for the labor force. This weekly report was released ahead the official nonfarm payrolls which are due on Friday. According to the consensus, the US economy is expected to create 450K jobs in the public and private sectors in October.
Mike Levengardt said, "We received some pretty good news about the job market this week. Taken together, when the Fed begins to retreat from its accommodative stance, it could be further evidence of solid gains when it comes to the economic recovery."
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