U.S. stocks, bonds rally as peak-rate wagers surge

A rally in global markets extended into a second day, lifting U.S. index futures and European stocks, as investors wagered central banks will have to slow the pace of monetary tightening.

Futures on the S&P 500 and Nasdaq 100 jumped at least 1.5 per cent each after the underlying indexes posted a strong start to the quarter on Monday. Europe’s Stoxx 600 gauge rose for a third day. The AU.S.tralian dollar traded weaker after policymakers raised interest rates by less than forecast. Oil advanced on expectations the OPEC+ alliance will deliver a substantial supply cut. The dollar and Treasury yields declined for a second day.

Investors see weaker-than-estimated U.S. manufacturing data supporting a dovish tilt at the Federal Reserve after 3 percentage points of hikes began to tell on the economy. Money markets now see the Fed Funds Rate peaking below 4.5 per cent by March. Speculation is growing that the global wave of disruptive monetary tightening is nearing its end, after the Reserve Bank of AU.S.tralia raised rates by half as much as expected. 

“While the more rational approach outlined by the RBA does not bring forward rate cuts, it offers the possibility of stepping back from the more extreme hawkishness of recent weeks,” Stephen Innes, managing partner at SPI Asset Management, wrote in a note. “That implies bull steepening in bond markets and should provide some support for equity markets if other central banks follow suit.”