Global stock markets rallied on Thursday while bond yields moved lower after Federal Reserve Governor Christopher Waller signaled that the central bank could remain patient before raising interest rates again.
The Japanese yen also surged against the US dollar as traders increased expectations for a Bank of Japan rate hike.
Waller Comments Ease Fed Rate Hike Expectations
Waller said during a Reuters NEXT Newsmaker event that he would support keeping interest rates unchanged at the Federal Reserve’s next meeting if upcoming data confirmed that inflation pressures were continuing to ease.
His comments quickly affected market expectations.
According to CME FedWatch, traders reduced the probability of a September rate hike to around 50%. That was down from approximately 63% during the previous session.
The shift helped calm markets after a sharp rise in global bond yields earlier in the week.
Bond Yields Fall After Recent Surge
Bond yields had climbed sharply as investors worried about renewed inflation pressures.
Oil prices surged earlier in the week following another escalation in the US-Israeli conflict with Iran, increasing concerns that higher energy costs could keep inflation elevated.
On Thursday, US Vice President JD Vance said Washington did not plan to hold talks with Iran unless Tehran stopped attacks on commercial shipping in the Strait of Hormuz.
Despite those geopolitical concerns, Waller’s comments helped push Treasury yields lower.
The yield on the benchmark 10-year US Treasury note fell 3.8 basis points to around 4.756%.
A day earlier, the 10-year yield had reached 4.818%, its highest level since November 1, 2023.
German government bonds also strengthened. The 10-year German yield fell around 2 basis points to 3.353%.
Investors Await US Jobs Report
Economic data released on Thursday suggested that the US labor market remains relatively slow but stable.
However, investors are closely watching Friday’s monthly employment report for additional clues about the Federal Reserve’s next move.
Economists expect the August jobs report to show that the US economy added around 56,000 jobs during the month.
The unemployment rate is expected to remain unchanged at 4.1%.
The report could play an important role in shaping expectations ahead of the Fed’s September policy meeting.
Dow, S&P 500 and Nasdaq Rally
Falling bond yields provided a major boost to US stocks.
The Dow Jones Industrial Average gained 624.16 points, or 1.18%, to close at 53,686.11.
The S&P 500 rose 81.11 points, or 1.06%, to 7,747.71.
Meanwhile, the Nasdaq Composite advanced 366.23 points, or 1.40%, to 26,584.06.
Global equities also moved higher.
MSCI’s global stock index rose 1.04% to 1,154.74.
European shares ended a three-session losing streak, with the STOXX 600 gaining around 0.5% to 649.1. The index recovered from one-month lows reached earlier in the week.
Broadcom Shares Fall Despite Market Rally
Not every stock benefited from the broader market rebound.
Broadcom shares dropped around 2.7% after the chipmaker issued a weaker-than-expected revenue forecast for its fourth quarter.
The decline stood out against otherwise strong gains across major US equity indexes.
Yen Surges on Bank of Japan Rate Hike Bets
The Japanese yen was one of the strongest performers in currency markets.
A sharp rise in the yen on Wednesday had initially triggered speculation that Japanese authorities had intervened in the foreign exchange market.
However, Bank of Japan data suggested that there had been no official intervention behind the move.
Japan’s top currency diplomat, Atsushi Mimura, said on Thursday that officials remained alert to developments in the foreign exchange market.
He also indicated that authorities were still uncomfortable with recent volatility in the yen.
Markets are now pricing in around a 75% probability that the Bank of Japan will raise rates by 25 basis points this month.
Some traders are also considering the possibility of a larger increase, while another rate hike in October remains possible.
The yen strengthened around 2.08% to approximately 155.47 per dollar.
That brought the currency close to the 155.21 level reached following Japan’s intervention in July.
US Dollar Weakens After Waller Remarks
The US dollar extended its losses following Waller’s comments.
The dollar index, which tracks the greenback against a basket of major currencies, fell around 0.69% to 98.91.
The euro gained approximately 0.41% to trade near $1.1634.
New York Federal Reserve President John Williams had said on Wednesday that rising long-term bond yields appeared to reflect strength in the US economy rather than renewed inflation concerns.
Investors continue to face conflicting signals from Federal Reserve officials as markets try to determine the future direction of monetary policy.
Oil Prices Mixed as Gold Jumps
Commodity markets produced mixed results.
Brent crude futures slipped 11 cents, or 0.12%, to settle at $95.52 per barrel.
US West Texas Intermediate crude rose 29 cents, or 0.32%, to $91.30 per barrel.
Both oil benchmarks had touched six-week highs earlier in the trading session.
Gold also rallied strongly.
Spot gold climbed around 1.99% to $4,473.40 per ounce as falling bond yields and a weaker dollar increased demand for the precious metal.
