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US stocks experienced gains on Tuesday, driven by indications from Federal Reserve officials that US interest rates may have reached their peak. The S&P 500, Wall Street’s benchmark, rose by 0.3%, with early trading showing basic materials and energy companies as the biggest winners. The Nasdaq Composite, known for its tech-heavy composition, also increased by 0.3% after the New York market opening.
Investor sentiment was positively influenced by remarks from Atlanta Fed President, Raphael Bostic, suggesting that inflation may return to the target level without the need for further rate hikes. San Francisco Fed President, Mary Daly, also expressed that the Fed was nearing the end of its cycle, both of whom are viewed as “doves” by investors due to their preference for looser monetary policies.
The latest updates in US markets come ahead of the release of new consumer price inflation data on Wednesday. Economists surveyed by Bloomberg are forecasting a 3.1% year-on-year increase in headline inflation for June.
In Europe, the Stoxx 600 gained 0.8%, while France’s Cac 40 was driven higher by luxury goods groups and real estate stocks, rising by 1.3%. Germany’s Dax also experienced a 0.4% increase. However, London’s FTSE 100 went against the trend, declining slightly by less than 0.1% following data revealing higher-than-expected wage growth in the UK during the three months leading up to May.
Economists suggest that the strong performance of the UK labor market may create pressure on the Bank of England’s Monetary Policy Committee to continue raising rates in August. Martin Beck, chief economic adviser to the EY Item Club, believes that a further rate hike in September is highly likely. James Smith, a developed market economist at ING, even suggests that the BoE may opt for a jumbo half-percentage point increase next month. He added that there are signs of the UK’s worker shortage crisis improving.
Sterling rose by 0.3% against the dollar, reaching a 15-month high of $1.29. Additionally, two-year gilt yields, which closely track interest rate expectations, increased by 0.02 percentage points to 5.383%.
In Asian markets, stocks saw positive movement after Chinese officials announced an extension of measures supporting the property sector until the end of 2024. Hong Kong’s Hang Seng index increased by 1%, China’s CSI 300 rose by 0.7%, and South Korea’s Kospi experienced a 1.7% rise. However, Japan’s Topix fell by 0.3%. Analysts at Liberum suggest that the recent decline in inflation and producer prices in China indicates a faltering growth story for the world’s second-largest economy.
Additional reporting by Mary McDougall in London
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