Equities Rally as European and UK Central Banks Hike Rates

Equities continue massive rally, rates grind lower once again. Swap rates and Treasury yields ended the day down just 1-3 bps across the curve after being down as many as ~10 bps earlier in the session. Equities continued to build on yesterday’s significant rally, with tech stocks again reaping most of the benefit. The NASDAQ jumped 3.25% today, fueled by % Meta’s 23.28% surge. Tomorrow’s nonfarm payrolls and unemployment data could put a quick halt to the rally- current consensus is for payroll growth to decelerate to 190,000 from 223,000.

Central bank news from across the pond echoes Fed announcement. The ECB hiked rates by 50bps to 2.5% today, the highest level since 2007, and signaled another 50bp hike in March. ECB president Lagarde said that the tightening cycle in Europe is not over, even as she noted that growth and inflation outlooks seem more balanced given softer consumer-price increases and a warm winter that saved the bloc from higher energy costs.  Much like the price action following yesterday’s FOMC meeting, European bonds also rallied on the expectation of a slower hiking pace. Meanwhile, in England, the BOE also raised rates by 50bps to 4.0%, the highest level since 2008. Most voters said strong wage growth and labor shortages continue to drive price pressures, but in a notable language shift away from stating they would “forcefully” respond to inflation, the monetary policy committee said that “if there were to be evidence of more persistent pressure, then further tightening in monetary policy would be required”.      

Day ahead. Nonfarm payrolls, which is expected to decrease to 190k in January from 223k in December, will be released at 8:30 AM. Unemployment data will also come at 8:30, which is forecasted to increase 0.1% to 3.6% in January. Non-manufacturing PMI will round out the data-heavy morning at 10 AM.