Stocks finished higher Monday, while the dollar eased against its global peers and Treasury bond yields declined, as investors reacted to suggestions of a slowdown in Federal Reserve rate hikes to start what could be a make-or-break week for global stock markets.
Bets on another jumbo rate hike from the Federal Reserve by the end of the year are starting to fade amid gentle hints from policymakers that they need to be mindful of their impact on the broader economy.
With the Fed's November rate decision now just a week away, traders have effectively locked-in the chances of a 75 basis point rate hike, which would take the Fed Funds rate to between 3.75% and 4%, but are now paring the chances of a similar move in December following comments from San Francisco Fed President Mary Daly on Friday.
"We have to make sure we are doing everything in our power not to overtighten, and we can't pull up too fast, and say we are done," Daly told an event in Monterey, California, echoing suggestions from colleagues such as Chicago Fed President Charles Evans, who has warned that outsized rate hikes could result in businesses pulling back on investment.
The remarks pared last week's rise in Treasury bond yields, with benchmark 10-year notes falling to 4.195% in New York trading from last week's fifteen year high of 4.371%, while bets on a 75 basis point rate hike in December, meanwhile, have fallen to 52.6% from around 78% last week, according to the CME Group's FedWatch.
In the meantime, weekend data from China indicating a faster-than-expected reading for third-quarter GDP in the world's second largest economy was met with skepticism as investors focused on the impact of Premier Xi Jinping's renewed grip on power -- and a third term as President -- following the Communist Party's twice-a-decade congress in Beijing.
China stocks slumped in overnight trading, with stocks in Hong Kong suffering their biggest single-day decline since 2008 on the heels of Xi's authoritarian extension of power.
The region-wide MSCI ex-Japan index was marked 1.9% lower heading into the close of trading, while Japan's Nikkei 225 gained 0.31% amid more reported intervention in foreign exchange markets by the Ministry of Finance in order to support the beaten-down yen.
In Europe, bets on a potential easing in the pace of Federal Reserve tightening, suggested late Friday by San Francisco Fed President Mary Daly, offset a weaker-than-expected reading for economic activity around the region, which slumped below the 50 point mark which separates growth from contraction for a fourth consecutive month.
The region-wide Stoxx 600 was marked 2.05% higher in mid-day Frankfurt trading while London's FTSE 100 gained 1% even as the pounds gained on reports of a likely clear winner in the Conservative Party contest to select a new Prime Minister.
Still with more than 160 S&P 500 earnings reports, the first reading of third-quarter GDP, October inflation data and central bank rate decisions in Europe and Canada in the windscreen, the S&P 500 ended up 1.14% -- extending the best weekly gain for stocks since late June.
The Dow Jones Industrial Average finished up 399 points, or 1.28%, to 31,481, while the tech-focused Nasdaq gained a more modest 0.86%, thanks in part to weakness for stocks with exposure to China.
U.S. listings for China-based stocks were also trading sharply lower Monday, with Alibaba Group Holding (BABAF) falling 12.54% to $63.13 while JD.com (JD) fell 13% to $36.66 each. Baidu (BIDU) shares were down 12.3% to $79.75 each.
Tesla (TSLA) shares, meanwhile, extended declines with a 1.5% slump after it cut prices for its China-made cars for the first time this year, suggesting softening demand in the world's biggest market.
