European stocks rose on Friday following an overnight rally on Wall Street, as signs of an end to the Federal Reserve’s tighter interest rate policy pushed some of the world’s biggest tech stocks to all-time highs.
Europe’s region-wide Stoxx 600 added 0.5 per cent while France’s Cac 40 gained 1 per cent and London’s FTSE 100 was up 0.4 per cent.
US futures pointed to further gains at the New York open after Wall Street stocks rallied overnight. Contracts tracking the tech-heavy Nasdaq 100 rose 0.3 per cent while those tracking the S&P were up 0.1 per cent.
The S&P and Nasdaq both closed 1.2 per cent higher as economic data showed signs of the labour market softening and consumer spending moderating. Investors took the data as a sign that the central bank might need to make fewer rate increases to tame inflation. Shares in Apple and Microsoft hit record highs.
Japan’s Topix index gained 0.3 per cent after the Bank of Japan kept its overnight interest rate on hold at minus 0.1 per cent as expected, even though inflation was above the central bank’s target of 2 per cent.
The country’s benchmark 10-year government bond yield was flat at 0.4 per cent after the announcement, while the central bank said it would continue to allow it to fluctuate by 0.5 percentage points above or below the target yield of zero.
Elsewhere in Asia, China’s CSI 300 rose 1 per cent and Hong Kong’s Hang Seng index gained 1.1 per cent.
Earlier in the week, the US Federal Reserve kept the federal funds rate steady at a target range of 5 to 5.25 per cent, marking the central bank’s first pause in more than 14 months.
Yet the move came with hawkish messaging from the Fed, which said it expected two more rate rises this year. Investors have priced in a 72 per cent probability that US policymakers will go ahead with another quarter-point increase at their next meeting in July, according to Refinitiv data.
The yen and pound strengthened against the dollar, with the yen rising as high as ¥141, its highest level since November, and sterling touching £1.28, the highest point since April last year.
The yield on two-year US Treasury notes rose 0.04 percentage points to 4.7 per cent on Friday. The yield on the benchmark 10-year note was flat at 3.73 per cent. Bond yields rise as prices fall.
On Thursday, the European Central Bank made a more hawkish move than the Fed, lifting its deposit rate by 0.25 percentage points to 3.5 per cent, its highest level since July 2001.
The bank signalled more monetary tightening to come, forecasting that inflation will not return to its 2 per cent target for another two years.
In its report on the eurozone economy on Friday, the IMF said the ECB needs to further tighten policy following to curb inflation.
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