- Stocks rose amid a rally in megacaps as corporate sector strength boosted investor sentiment. Treasuries rose as data indicated that the US economy was weakening.
- The S&P 500 was on track for its best three-day gain since May 27th, led by technology and consumer discretionary stocks. Tesla topped the leaderboard after its quarterly results exceeded expectations, with Apple and Amazon also rising ahead of earnings due next week. Stocks briefly fell in morning trading after news that US President Joe Biden had tested positive for COVID.
- Treasury yields fell, with the 10-year yield falling back below 3% following a knee-jerk move higher following the European Central Bank's larger-than-expected rate hike. The increase in jobless claims indicated a softening in the labour market, while the outlook for business conditions among Philadelphia-area manufacturers and the Conference Board's leading economic index fell more than expected.
- Markets were roiled in early trading after the European Central Bank raised interest rates by 50 basis points, the first increase in 11 years and the largest since 2000. It comes as a brewing political crisis in Italy increases pressure on the ECB to protect the eurozone's most vulnerable members from market speculation via a new crisis management tool. The euro initially rose in response to the decision before losing ground against the dollar.
- Stocks have risen more than 8% since a multi-year low in mid-June, on the back of earnings optimism and speculation that the Federal Reserve will take a more measured approach to tightening policy. It is unclear whether the market has bottomed, but yields have fallen in the last month, and rates markets have abandoned bets on a full percentage point hike when the Fed meets next week.
- Nonetheless, sentiment remains fragile in the face of accelerating inflation and the prospect of a sharp decline in global economies, as well as geopolitical risks, particularly in Europe. The resumption of Russian gas exports to the region via the Nord Stream could provide some relief to the continent, which is racing to stockpile fuel before winter.
