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Week ending June 16th, US stocks recorded their biggest weekly gain since March as investors hoped the Federal Reserve’s aggressive campaign of interest rate rises would soon end. The S&P 500 was up 2.6 per cent over the past five sessions, its biggest weekly gain since late March. The Nasdaq index gained 3.2 per cent this week, the biggest advance since mid-March. Both indices have climbed this year on hopes that we are close to an end to the Fed’s historic policy to raise rates to tame inflation, pushing them into bull market territory.

A resolution in early June to the weeks-long political stand-off over the US debt ceiling has also played into this month’s relief rally.

The Fed this week paused its campaign of interest rate rises for the first time in more than a year, even as it suggested there would be further interest rate increases to come.

 “Market expectations and Federal Reserve expectations for where the economy is heading are moving in different directions”, said James Knightley, chief international economist at ING. “Futures contracts are not even fully discounting one hike, let alone the two that the Fed are currently projecting.”

The yield on two-year US Treasury notes rose 0.08 percentage points to 4.73 per cent mid-June. The yield on the benchmark 10-year is 3.77 per cent. Bond yields rise as prices fall.

The gains for US stocks this week have also come against the backdrop of big moves from other global central banks that painted a picture of still-challenging (inflation) conditions in other parts of the world. The European Central Bank this week raised interest rates to their highest level since 2001 and hinted at further policy tightening to combat stubbornly high inflation, while China’s central bank earlier this week cut an important interest rate in response to the softening post-Covid recovery in the world’s second-biggest economy.

UK 2-year Government Bond yields hit a 15-year high of close to 5% as inflation in the UK looks particularly stubborn indicating higher interest rates for longer.

Oil prices rose are fairly static around $76 a barrel, and gold is also quiet at $1,950 per ounce.

Summary: Equities in many markets (including US) are close to the highs looking at the last 52-week range on hopes global inflation is being tamed and interest rate hike cycle is close to an end with the UK looking a bit of an exception where inflation seems more engrained. Inflation data will determine the near-term direction of these markets.