Stocks rally stagnates, eyes on Powell testimony for US rate clues

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US closed for holidays, markets await Powell testimonyUK 2-year gilt yield tops 5% ahead of BoE meeting on ThursdayNikkei slides, yen to 7-month low after BOJLa meeting China expected to ease monetary policy after growth disappointment

LONDON, SYDNEY, June 19 (Reuters) – Global stocks swerved on Monday from 14-month highs hit last week as investors awaited testimony from U.S. Federal Reserve Chairman Jerome Powell in markets that remain dominated by monetary policy bets.

The broad gauge of MSCI global stocks rose 0.2% (.MIWD00000PUS) as Wall Street markets closed for the June 16 holiday.

In Europe, the Stoxx 600 stock index fell 0.5%.

After a week in which the stock market applauded the Fed’s decision not to raise rates in June, Powell is scheduled to give testimony to Congress on Wednesday and Thursday.

Hopes that the Fed will end its most aggressive rate hike campaign in decades boost global equity indices dominated by US tech megacaps which tend to outperform when risk appetite is supported by monetary policy more flexible.

Billions of dollars have been poured into big tech in recent weeks, with analysts citing the productivity-enhancing potential of artificial intelligence for the rally.

“The obvious AI narrative has dominated this rally in tech stocks,” said Dan Cartridge, portfolio manager at Hawksmoor.

“But it also has a lot to do with interest rate expectations,” he added, warning that the Fed’s continued hawkishness would mean “we’ll see valuation compression again quite quickly.”

In Europe, the pound sterling traded near its highest against the dollar since April 2022, at $1.2814.

Bets that the Bank of England will raise interest rates to a 15-year high this week as inflation continues to run more than four times its target have supported the pound. Money markets are now putting a 75% chance that the BoE will opt for a 25 basis point (bp) rate hike and a 25% chance of a 50 bp hike,

Yields on two-year UK government bonds, which reflect rate expectations and rise when the price of debt falls, added 8 basis points to 5.01%, topping the 15-year high of last week. The yield on UK 10-year gilts stood at 4.462%, in an inverted yield curve pattern that can precede recessions.

In Asia, the Japanese Nikkei (.N225) fell 1%, slightly off three-decade highs.

China’s blue chips (.CSI300) fell 0.9%, while Hong Kong’s Hang Seng index (.HSI) fell 1.2% as investors hoped for a vigorous economic stimulus from Beijing having been devastated by the lack of concrete details from a cabinet meeting on Friday.

Goldman Sachs on Sunday lowered its forecast for China’s GDP growth this year to 5.4% from 6.0%, joining other major banks in lowering growth expectations for the world’s second-largest economy.

But the People’s Bank of China is also expected to cut its prime interest rates on benchmark loans on Tuesday, following a similar reduction in medium-term loans last week.

Elsewhere, the dollar index was little changed against major peers at 102.33 on Monday, after falling 1.2% the previous week, the most in five months.

The yen was undermined by the Bank of Japan’s dovish meeting on Friday, hitting a seven-month low of 141.97 to the dollar, while the hawkish European Central Bank, which raised rates a quarter point the last week helped the euro hold near a five-week high at $1.092.

In oil markets, Brent fell 0.2% to $76.44 a barrel.

Gold prices held steady at $1,954.39 an ounce.

Reporting by Naomi Rovnick and Stella Qiu; Editing by Tom Hogue, Gerry Doyle and Emma Rumney

Our standards: The Thomson Reuters Trust Principles.

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