GLOBAL MARKETS-World stocks hit five-week peak, as dollar continues retreat

By Chris Prentice and Dhara Ranasinghe

WASHINGTON/LONDON, Oct 26 (Reuters)World stocks rose to a five-week peak on Wednesday in choppy trading as US shares were mixed, with investors weighing disappointing earnings from US heavyweights with hopes the Federal Reserve will slow its aggressive pace of interest rate hikes.

The US dollar index fell to a five-week low as the pound touched its highest since Sept. 13, continuing its rally after Rishi Altar 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 .DJI rose 0.27% by 1:30 pm ET (1730 GMT). The S&P 500 .SPX lost 0.44% and the Nasdaq Composite .IXIC dropped 1.69%, dragged by disappointing earnings and warnings from Microsoft and Alphabet.

MSCI’s World Stock Index .MIWO000000PUS was up 0.14% after touching a five-week high. Europe’s Stoxx 600 .STOXX 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 posting stronger-than-expected profits, helped by a trading boom in volatile markets and higher interest rates. Deutsche Bank DBKGn.DE posted a better-than-expected jump in third-quarter profit, and Britain’s Barclays BARC.L also beat profit forecasts.

Google owner AlphabetGOOGL.O posted softer-than-expected ad sales after Tuesday’s close and MicrosoftMSFT.O missed revenue forecasts, while a warning from Dutch semiconductor supplier ASM ASMI.AS added to concerns about slowing economic growth.

US new home sales decreased 10.9% and mortgage rates reached their highest in 20 years last week, data showed.

Asian shares rally, 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 points hike in November, a sense that the Fed 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 points move to contain stubbornly high inflation.

“With Bank of Canada raising lesser than expected, you’re definitely seeing a good switch away from earnings,” said Steve Sosnick, chief strategist at Interactive Brokers.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rally more than 1%, while Japan’s Nikkei.N225 hit its highest level since Sept. 20.

The euro pushed back above $1 for the first time in five weeks EUR=EBS.

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 CNY=CFXS.

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%.

Gold prices jumped as the dollar and bond yields weakened. spot prices XAU= touched a two-week high and were last up 0.72%.

Elsewhere in commodities, oil prices jumped 3% on record US crude exports and strong demand. Brent crude LCOc1 futures were last up 2.3% and US crude CLc1 rose 3.1%.O/R

Global FX performance

Global asset performance

(Additional reporting by Shruthi Shankar and Ankika Biswas; Editing by Andrea Ricci)

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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