By Chris Prentice and Dhara Ranasinghe
WASHINGTON/LONDON (Reuters) – U.S. shares were mixed and world equities eased off a five-week peak on Wednesday, as the dollar’s decline boosted commodities and pressured Treasury yields.
Investors weighed disappointing earnings from U.S. heavyweights against hopes the Federal Reserve will slow its aggressive pace of interest rate hikes.
The pound touched its highest level since Sept. 13, continuing its rally after Rishi Sunak became Britain’s prime minister. News that the British government’s plan to repair the country’s public finances will be delayed by more than two weeks to Nov. 17 pushed up bond yields.
The Dow Jones Industrial Average closed a hair higher, rising 0.01%. The S&P 500 lost 0.74% and the Nasdaq Composite dropped 2.04%, dragged by disappointing earnings and warnings from Microsoft Corp and Alphabet Inc.
MSCI’s World Stock Index was lower after touching a five-week high. Europe’s Stoxx 600 finished up 0.7% at its strongest level since Sept. 20.
Some of Europe’s largest banks warned of growing risks as the economy fizzles after they posted stronger-than-expected profits, helped by a trading boom in volatile markets and higher interest rates. Deutsche Bank posted a better-than-expected jump in third-quarter profit, and Britain’s Barclays also beat profit forecasts.
Google owner Alphabet posted softer-than-expected ad sales after Tuesday’s close and Microsoft missed revenue forecasts, while a warning from Dutch semiconductor supplier ASM added to concerns about slowing economic growth.
U.S. new home sales decreased 10.9% and mortgage rates reached their highest level in 20 years last week, data showed.
Asian shares rallied, in a sign that some investors were taking comfort from a perception that a turn in the global rate-hike cycle may be near.
Although the Fed is widely expected to deliver another 75 basis-point hike in November, a sense that it could then start to slow its aggressive tightening cycle has lifted sentiment in share markets and taken the edge off a dollar rally.
“I wouldn’t want to take the optimism too far. We think it’s still too soon for the Fed to make a significant pivot and the stronger markets are, the more likely it is that the Fed wants to be more cautious about wanting to make a pivot,” said Andrew Sheets, chief cross-asset strategist at Morgan Stanley.
Sheets also noted “more downside risk” for earnings.
The Bank of Canada, meanwhile, announced a smaller-than-expected rate rise of 50 percentage points. That put its policy rate at 3.75%, a 14-year high but coming up short on calls for another 75 basis-point move to contain stubbornly high inflation.
“With Bank of Canada raising lesser than expected, you’re definitely seeing a good switching away from earnings,” said Steve Sosnick, chief strategist at Interactive Brokers.
MSCI’s broadest index of Asia-Pacific shares outside Japan rallied more than 1%, while Japan’s Nikkei hit its highest level since Sept. 20.
The euro pushed back above $1 for the first time in five weeks.
In Australia, inflation raced to a 32-year high last quarter as the cost of home building and gas surged. The surprise added pressure on the central bank to reverse a recent dovish turn, though markets doubt there will be a dramatic shift.
China’s yuan rebounded sharply to close the domestic session at the strongest level in two weeks, as traders and corporate clients raced to liquidate long dollar positions.
Market participants became cautious after major state-owned banks were spotted selling the dollar on Tuesday to stabilize the market, traders said.
Investors increased bets on the Bank of England raising its benchmark rate by a full percentage point on Nov. 3 after news of the delay of a tax and spending plan announcement, putting the chances of such a move at around 37%.
U.S. Treasury yields fell, helped by a weaker dollar and Fed hopes. [US/]
The weaker greenback also boosted commodities, making them less expensive to holders of other currencies. Spot prices touched a two-week high and were last up 0.65%. U.S. gold futures settled up 0.7% at $1,669.20.
Elsewhere in commodities, Brent crude futures settled up 2.3% at $95.69 a barrel, as U.S. crude finished 3% higher at $87.91. [O/R]
(Reporting by Chris Prentice in Washington and Dhara Ranasinghe in London; Additional reporting by Shruthi Shankar and Ankika Biswas; Editing by Andrea Ricci and Matthew Lewis)