# Stocks, euro gain amid divergent Fed, ECB rate hike outlooks
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2023-01-23
Category: INVESTING
Category URL: https://financedigest.com/category/investing
Meta Title: Global Equity Markets Surge Amid Recession Fears Easing
Meta Description: Follow the latest news on global equity markets as easing recession fears and hopes for a more lenient Federal Reserve boost sentiment and stock prices.
URL: https://financedigest.com/stocks-euro-gain-amid-divergent-fed-ecb-rate-hike-outlookshtml

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By Herbert Lash

NEW YORK (Reuters) -Global equity markets surged on Monday as easing recession fears and hopes of a less aggressive Federal Reserve buoyed sentiment, while the likelihood of more jumbo interest rate hikes in Europe pushed the euro to a nine-month peak against the dollar.

Gains in chipmakers boosted beaten-down U.S. tech stocks as the market priced in a 95.8% probability of the [Fed raising rates](https://www.financedigest.com/dollar-hits-one-month-high-against-yen-as-traders-bet-on-fed-rate-hike.html "Dollar hits one-month high against yen as traders bet on Fed rate hike") by 25 basis points to a range of 4.50% to 4.75% on Feb. 1.

Easing fears of a recession also helped lift equities, as they did in the euro zone, despite expectations the European Central Bank will [hike rates](https://www.financedigest.com/wall-street-slips-dollar-gains-as-fed-seen-hiking-rates-in-may.html "Wall Street slips, dollar gains as Fed seen hiking rates in May") by 50 basis points both on Feb. 2 and in March, a [Reuters poll](https://www.financedigest.com/european-central-bank-to-raise-deposit-rate-to-3-25-by-mid-year-reuters-poll.html "European Central Bank to raise deposit rate to 3.25% by mid-year: Reuters poll") showed.

The start of a [big week](https://www.financedigest.com/oil-edges-up-but-on-track-for-big-weekly-drop-on-supply-concerns.html "Oil edges up but on track for big weekly drop on supply concerns") for U.S. corporate earnings is expected to test a recent bounce in beaten-down [technology and growth stocks](https://www.financedigest.com/chatgpt-mania-pumps-up-chinese-ai-technology-stocks.html "ChatGPT mania pumps up Chinese AI technology stocks") as corporate executives discuss their outlook.

[Stocks are rallying](https://www.financedigest.com/asian-stocks-rally-as-bank-jitters-calm-alibaba-lifts-mood.html "Asian stocks rally as bank jitters calm, Alibaba lifts mood") as people mistakenly believe a proximate change in Fed policy will resolve worries about higher rates and their impact on the economy, said Jason Pride, chief investment office of private wealth at Glenmede in Philadelphia.

We are already at a point where if we stick at these numbers and hold them for a period of time, it is not good for the economy,” said Pride, referring to [rates that are now “restrictive” and squeezing economic](https://www.financedigest.com/stocks-falter-as-economic-worries-nag-nz-delivers-big-rate-hike.html "Stocks falter as economic worries nag, NZ delivers big rate hike") growth.

This is like other market [rallies](https://www.financedigest.com/jittery-markets-attempt-risk-on-rally-while-waiting-for-powell.html "Jittery markets attempt risk-on rally while waiting for Powell") that we’ve seen within an ongoing bear market in that you have these periods of optimism seep in because people think that the story is changing enough that the problem is gone,” he said.

The Dow Jones Industrial Average rose 0.61%, the S&P 500 gained 1.02% and the Nasdaq Composite added 1.75%, [pushing gains](https://www.financedigest.com/bayer-shares-gain-on-prospect-of-second-activist-pushing-for-change.html "Bayer shares gain on prospect of second activist pushing for change") since late last month to more than 10%.

In Europe, technology firms spearheaded gains as optimism about the eurozone economy likely [avoiding a steep recession](https://www.financedigest.com/uk-to-avoid-recession-this-year-but-outlook-still-weak-bcc-says.html "UK to avoid recession this year but outlook still weak, BCC says") overshadowed recent hawkish remarks from ECB officials.

The pan-European STOXX 600 closed up 0.6%, as declining natural gas prices [eased recession fears](https://www.financedigest.com/oil-falls-as-earthquake-impact-on-crude-eases-rate-hike-fears-rise.html "Oil falls as earthquake impact on crude eases, rate hike fears rise").

Trading was thin in Asia, as markets in China, [Hong Kong](https://www.financedigest.com/screening-of-winnie-the-pooh-horror-film-cancelled-in-hong-kong.html "Screening of ‘Winnie the Pooh’ horror film cancelled in Hong Kong"), Singapore, Malaysia, South Korea and Taiwan were closed for the Lunar New Year holiday.

MSCI’s gauge of [stocks across the globe gained](https://www.financedigest.com/stocks-mixed-dollar-gains-after-robust-inflation-jobs-data.html "Stocks mixed, dollar gains after robust inflation, jobs data") 0.87%.

Investors are waiting for [euro zone](https://www.financedigest.com/euro-zone-consumers-more-optimistic-on-inflation-ecb-survey-shows.html "Euro zone consumers more optimistic on inflation, ECB survey shows") and U.S. flash PMI data on Tuesday, which are [expected to show less severe economic contractions](https://www.financedigest.com/contract-caterer-compass-expects-2023-profit-growth-to-top-20.html "Contract caterer Compass expects 2023 profit growth to top 20%") than the previous month, according to analysts polled by Reuters. The [data is forecast to show more improvement](https://www.financedigest.com/how-sd-wan-can-help-financial-services-secure-data-and-improve-the-cx.html "How SD-WAN can help financial services secure data & improve CX") in Europe than in the United States.

The difference in expectations for Fed and ECB policy led the euro to [hit $1.0927 as it climbs from a two-decade low of $0.953 set](https://www.financedigest.com/uk-economy-set-for-smaller-hit-in-2023-than-previously-feared-imf.html "UK economy set for smaller hit in 2023 than previously feared – IMF") in September. The single currency later pared [gains against the dollar](https://www.financedigest.com/dollar-trims-gains-vs-euro-after-u-s-inflation-data.html "Dollar trims gains vs euro after U.S. inflation data") as it slid to $1.0859.

The combination of a risk-off [mood in the stock](https://www.financedigest.com/world-stocks-cling-to-upbeat-mood-dollar-stalls.html "World stocks cling to upbeat mood, dollar stalls") market and the divergence between the Fed and ECB allowed the euro to make new highs above 109,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.

Sterling traded at $1.2366, down 0.22%, while the [Australian dollar](https://www.financedigest.com/asian-stocks-make-7-month-highs-australian-dollar-gains-on-hot-inflation.html "Asian stocks make 7-month highs, Australian dollar gains on hot inflation"), seen as a proxy for risk appetite, rose 0.80% to $0.7022. The Japanese [yen weakened 0.82% at 130.65 per dollar](https://www.financedigest.com/yen-sinks-as-rates-outlook-diverges-nz-dollar-tumbles.html "Yen sinks as rates outlook diverges; NZ dollar tumbles").

Treasury yields rose to further erode a recent [bond rally that some investors say](https://www.financedigest.com/stanchart-ceo-says-at1-bond-wipeout-has-profound-impact.html "StanChart CEO says AT1 bond wipeout has profound impact") was overdone in reflecting fears that the U.S. [economy may soon enter a recession](https://www.financedigest.com/world-bank-warns-global-economy-could-easily-tip-into-recession-in-2023.html "World Bank warns global economy could easily tip into recession in 2023").

The [yield on 10-year Treasury](https://www.financedigest.com/wall-street-drops-treasury-yields-gyrate-on-fed-chairman-powells-remarks.html "Wall Street drops, Treasury yields gyrate on Fed Chairman Powell’s remarks") notes rose 3.7 basis points to 3.521%.

[Euro zone bonds](https://www.financedigest.com/delivery-hero-ramps-up-interest-payments-to-raise-1-billion-euro-convertible-bond.html "Delivery Hero ramps up interest payments to raise 1 billion euro convertible bond") were little changed, with the benchmark 10-year German yield at 2.212%.

Crude prices rose to extend last week’s gains on the back of a stronger [outlook thanks to an expected economic recovery in top oil importer China this year](https://www.financedigest.com/2017-cfo-outlook-top-priorities-as-new-year-gets-underway.html "2017 CFO Outlook: Top Priorities as New Year Gets Underway").

Oil prices pared gains on Monday after they rose to a seven-week high on [investor optimism thanks to an expected economic recovery in top](https://www.financedigest.com/top-ten-biggest-mistakes-by-novice-investors-and-how-to-avoid-them.html "TOP TEN BIGGEST MISTAKES BY NOVICE INVESTORS – AND HOW TO AVOID THEM") oil importer China this year.

Brent crude settled 56 cents higher at $88.19 a barrel. U.S. crude fell two cents to settle at $81.62.

U.S. gold futures settled [little changed](https://www.financedigest.com/stocks-dollar-little-changed-as-inflation-data-sends-mixed-signals.html "Stocks, dollar little changed as inflation data sends mixed signals") at $1,928.6.

(Reporting by Herbert Lash, additional reporting by [Elizabeth Howcroft in London](https://www.financedigest.com/34315plane-carrying-coffin-of-queen-elizabeth-lands-in-london.html "Plane carrying coffin of Queen Elizabeth lands in London"), Editing by Christina Fincher, Chizu Nomiyama, Sharon Singleton and Nick Zieminski)


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