US stocks made modest gains on Friday, positioning their blue-chip indices for their strongest week since March. Investors are hopeful that the Federal Reserve will conclude its aggressive campaign of interest rate hikes.
In morning trading, the S&P increased by 0.2%, while the tech-heavy Nasdaq Composite remained flat due to Apple and Microsoft, both of whom retreated from record highs by 0.2% and 0.7% respectively.
Both indices have experienced growth this year as a result of expectations that the Federal Reserve will bring their 15-month policy of rate increases to a close in order to control inflation. This growth has pushed the indices into bull market territory.
This week, the Federal Reserve intimated that there will be further rate hikes throughout the year, despite keeping its federal funds rate steady at 5% to 5.25%. However, weak economic data released on Thursday gave hope to investors that the central bank may need to reduce the number of rate hikes in response to a cooling economy.
James Knightley, ING’s Chief International Economist, explained, “Market expectations and Federal Reserve expectations for where the economy is heading are moving in different directions. Futures contracts are not even fully accounting for one hike, let alone the two that the Fed is currently projecting.”
According to Refinitiv’s data, which is based on the prices of interest rate derivatives, investors have factored in a 72% likelihood that the Federal Reserve will proceed with another quarter-point increase during their upcoming policy meeting in July.
On Friday, the yield on two-year US Treasury notes rose by 0.1% to 4.74%, while the yield on the benchmark 10-year increased by 0.05% to 3.78%. Bond yields rise as prices decrease.
Meanwhile, the Stoxx 600 in Europe closed 0.5% higher, the Cac 40 in France gained 1.3%, and London’s FTSE 100 increased by 0.2%.
Japan’s Topix index grew by 0.3% after the Bank of Japan maintained its overnight interest rate at -0.1%, as expected. Despite inflation surpassing the central bank’s 2% target, the yen fell to ¥141.9 against the dollar, reaching its lowest level since November.
Following the announcement, Japan’s benchmark 10-year government bond yield remained unchanged at 0.4%, and the central bank stated that it would continue to allow the yield to fluctuate within 0.5 percentage points above or below the target of zero.
In other areas of Asia, China’s CSI 300 rose by 1%, and Hong Kong’s Hang Seng index increased by 1.1%.
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