​​​​​​​US Stocks Surge as Treasury Yields Dip Amid Fed Rate Pause Expectations; UK's BoE Maintains Rates Unchanged | Daily Market Analysis

Key events:

• USA - Average Hourly Earnings (MoM) (Oct)
• USA - Nonfarm Payrolls (Oct)
• USA - Unemployment Rate (Oct)
• USA - S&P Global Services PMI (Oct)
• USA - ISM Non-Manufacturing PMI (Oct)
• USA - ISM Non-Manufacturing Prices (Oct)

On Thursday, US stocks surged as Treasury yields dipped, reflecting the belief that the Federal Reserve has paused interest rate hikes following two consecutive meetings where it maintained the benchmark rate.

The Dow Jones Industrial Average rose by 493 points or 1.2%, with the S&P 500 gaining 1.8% and the NASDAQ Composite advancing by 1.7%.

Wednesday witnessed significant gains in the major Wall Street indices, with the Dow increasing by 220 points, or 0.7%, the S&P rising by 1.1%, and the Nasdaq climbing by 1.6%. This optimistic trend coincided with the Federal Reserve's latest policy-setting meeting, where it decided to keep interest rates steady, as widely anticipated.

Federal Reserve Chairman Powell's statements indicated that a December rate hike remained possible, emphasizing the Fed's hesitancy to adopt a decisively restrictive monetary stance, according to Deutsche Bank. However, Powell also appeared unfazed by recent robust economic data, perhaps due to concerns about financial conditions tightening and the need for more data to assess the sustainability of these trends.

Despite the recent economic upturn, the Federal Reserve's decision to maintain rates unchanged has fostered hope that further rate hikes may not be imminent. Treasury yields declined further, with the 10-year Treasury yield dropping by 12.3 basis points to 4.666%.

Starbucks Corporation (NASDAQ: SBUX) saw a remarkable surge of over 10% following the release of its fiscal fourth-quarter results, surpassing Wall Street expectations on both revenue and profit. The company's growth in the crucial Chinese market was a key driver of its strong performance.

Conversely, Moderna Inc (NASDAQ: MRNA) reported a larger-than-expected loss in the third quarter, primarily due to reduced demand for its COVID vaccine, resulting in a $3.1 billion loss from unused vaccines. This led to an approximate 8% decline in its shares.

Apple (NASDAQ: AAPL) announced its fiscal fourth-quarter earnings on Thursday, surpassing analyst projections for both sales and earnings per share. However, the report also highlighted a continued decline in overall sales for the fourth consecutive quarter. Year-over-year sales decreased in every hardware sector except the iPhone, with significant declines in the iPad and Mac segments.

Following the earnings report, Apple's shares experienced a dip of over 3% in after-hours trading, reflecting concerns raised by company executives about the potential for the company to return to growth during the upcoming holiday quarter.

European markets had a robust day for corporate earnings, with the FTSE 100 experiencing its most substantial one-day gain in three weeks, and the DAX reaching a two-week high. After a challenging October, there is a sense of optimism driven by falling yields, suggesting that central banks, including the Bank of England, have completed their rate-hiking cycles, following the Federal Reserve's lead in holding rates steady.

Despite the Bank of England (BoE) maintaining the Bank Rate (key policy rate) at 5.25%, the British pound's gains today have been somewhat lackluster. Six members of the BoE's Monetary Policy Committee voted for an unchanged rate, including the newest member, Sarah Breeden, while three members advocated for a 25bp rate hike.

In a press conference, Governor Bailey attempted to temper expectations of rate cuts by stating that it was "much too early to be thinking about rate cuts." The intention was to prevent financial conditions from easing prematurely. However, the market was skeptical of this narrative, given lower GDP forecasts, higher unemployment expectations, and other signs of a fragile UK economy.

The US dollar also weakened against the Japanese yen, although it did not fully reverse the move observed on Tuesday following the Bank of Japan's adjustment to its Yield Curve Control (YCC) policy.

All eyes are now on the Nonfarm Payrolls (NFP) report for October, which could influence the USD's short-term direction and lead to further losses.

Market expectations and economic forecasts indicate a potential increase of 180,000 jobs in October, a decline from the 336,000 added in September. The US unemployment rate is anticipated to remain at 3.8%, with wage growth expected to rise to 0.3% from September to October, up from 0.2%. The year-on-year wage increase is projected to moderate from 4.2% to 4.0%.