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Global stocks soar ahead of central banks’ rate decision

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MSCI’s all-country world index also jumped to a new two-year high, ending 0.6% higher, lifted by the S&P 500’s sixth all-time closing high so far in January

Global stocks soared on Monday, with the S&P 500 closing at a new record close and European shares reaching a two-year high, as markets pared bets on interest rate cuts by the Federal Reserve and other central banks.

MSCI’s all-country world index also jumped to a new two-year high, ending 0.6% higher, lifted by the S&P 500’s sixth all-time closing high so far in January.

A marginal gain in Europe’s broad STOXX 600 index after its biggest weekly gain in three months last week also helped advance the global gauge of stock performance.

The equity rally comes at the start of a week packed with big corporate earnings, European inflation data, Fed and BoE policy meetings and U.S. employment data that could shape the market’s direction for months to come.

Investors are trying to understand the outlook for the U.S. economy as it is unlikely to require the deep interest rate cuts by the Federal Reserve it has priced in, said Phillip Nelson, head of asset allocation at NEPC.

Absent geopolitical shocks, the U.S. economy will grow better than expected with just a few areas underperforming, he added.

The Dow Jones Industrial Average gained 0.59%, the S&P 500 added 0.76% and the Nasdaq Composite advanced 1.12%.

Mega cap earnings will be assessed this week after disappointing forecasts from Intel and Tesla last week deepened concerns about the valuation of the mega growth stocks that spearheaded the rally at year-end 2023.

The euro dipped to nearly a seven-week low, breaking below the 1.08 level, as the market dialled back expectations of the extent of rate cuts this year by the Fed and ECB, said Marc Chandler, chief market strategist at Bannockburn Global Forex.

We are still reacting and correcting to what happened in Q4 last year, he added.

The market got in its head there’d be aggressive rate cuts not just by the Fed, but by the BoE and the European Central Bank. The dollar sold off in that environment, he added.

The dollar index declined, down 0.09%, while the euro slipped 0.18% at $1.0832 after dropping to $1.0797. The euro may be poised for a weak February, as it has dropped versus the dollar the past seven years during the month, Chandler said.

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