Stocks rose on Thursday, while expectations for a Federal Reserve rate cut next month kept the dollar a touch softer against most currencies although the yen remained on intervention watch as traders weighed the prospect of a rate hike before year-end.
A holiday-shortened week has limited some of the activity across markets. Stocks have kept a largely upbeat tone and currencies are much more sedate as investors shrug off AI bubble worries that had roiled equities earlier in November.
The US markets are closed for the Thanksgiving holiday on Thursday and will only have a short session on Friday.
European markets traded modestly higher, with the STOXX 600 index up 0.1 per cent, echoing the firmer tone across Asian equity markets overnight, as gains in defence and tech companies offset losses in healthcare stocks.
With a Fed rate cut largely seen as a near-certainty next month against the backdrop of an upbeat earnings season, the most likely direction for stocks is going to be upwards, analysts said.
"As long as your main engine is going nicely, then a lot of the worries about valuations just get pushed up to the back foot for the time being, until something else comes along," IG chief markets strategist Chris Beauchamp said.
He added that the most likely catalyst to derail a rally would come in the form of renewed concern over spending on AI, as has been the case for weeks. "That is the market's kryptonite at the moment," he said.
The dollar, meanwhile, headed for its first daily rise against a basket of currencies in a week, up a modest 0.1 per cent, due mainly to weakness in the euro and the pound. Sterling retreated from near four-week highs hit on Wednesday after UK finance minister Rachel Reeves' budget helped alleviate some concern about Britain's long-term finances. The pound was last down 0.1 per cent on the day at $1.323.
US macro data is flowing again since the record 43-day government shutdown ended mid-November, although most of the reports so far have been fairly out of date and offered very little insight into the current state of the economy.
This has left investors leaning more heavily on comments from Fed officials for some guidance on where interest rates might go in the coming months. A number of speakers in the last week, including San Francisco Federal Reserve Bank President Mary Daly and Fed Governor Christopher Waller, have boosted expectations for a December rate cut.
Traders are now pricing in an 85 per cent chance of a rate cut next month compared with just 30 per cent a week earlier, CME FedWatch showed.
George Boubouras, managing director of K2 Asset Management, said there is enough labour market weakness to offset higher inflation, which the Fed has signalled it can tolerate for now.
"While core inflation is above target, the US 10-year breakeven inflation rate around 2.25 per cent suggests that markets are broadly comfortable inflation expectations remain reasonable." — Reuters
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