By Chris Prentice and Tom Wilson
WASHINGTON/LONDON (Reuters) -The U.S. dollar touched its highest level since 2002 on Thursday, as Wall Street rose and European shares moved off six-week lows as strong earnings reports offset gloomy U.S. economic data.
The yen dropped to a 20-year low after the Bank of Japan vowed to buy unlimited amounts of 10-year bonds daily to defend its yield target. The bank’s strengthening of its commitment to ultra-low interest rates sent the U.S. dollar to a fresh high, weakened emerging market currencies and pushed borrowing costs for U.S. dollars in currency derivatives markets sharply higher.
Oil prices rallied after reports that Germany is no longer opposed to an embargo on Russian oil, which could further tighten global supplies. [O/R]
The Dow Jones Industrial Average rose 604.71 points, or 1.82%, to 33,906.64, the S&P 500 gained 103.21 points, or 2.47%, to 4,287.17 and the Nasdaq Composite added 382.83 points, or 3.07%, to 12,871.76 by 2:29 p.m. EST (1830 GMT).
Technology stocks gained on strong earnings, led by a rally in Facebook parent Meta Platforms, which was up nearly 19%.
Those gains supported Wall Street even after the U.S. Commerce Department said in its advance GDP estimate that gross domestic product fell at a 1.4% annualized rate last quarter.
“Huge miss on GDP this morning, but just looking at headline is misleading,” said Cliff Hodge, Chief Investment Officer for Cornerstone Wealth.
“Trade, inventories and government spending all dragged, but the consumer held up and business investment was strong. The shift to services spending bodes well for inflation moving forward, and core PCE came in a bit light. The big headline miss also gives the Fed some breathing room.”
The MSCI world equity index rose 12.25 points or 1.87%, to 666.15.
European stocks gained on solid corporate earnings. The pan-European STOXX 600 closed up 0.6%, but was below session highs, hit by weak advance first quarter U.S. economic growth data as well as higher-than-expected German inflation spurring bets on a quicker pace of monetary tightening by the European Central Bank. [.EU]
Indexes in Frankfurt and Paris both rose.
London-listed bank Standard Chartered jumped 13% after upbeat quarterly earnings. Its Hong Kong-listed shares had earlier gained more than 10%.
“Markets were quite fearful at the start of the earnings season but Meta’s earnings last night seems to have calmed sentiment,” said Kaspar Hense, senior portfolio manager at Bluebay Asset Management in London. “It looks like we have turned a corner for the outlook for U.S. stocks and that should provide some relief to investors watching the dollar’s rise.”
Earlier, MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.93%.
The BoJ’s move was in stark contrast with investors’ conviction that U.S. interest rates are about to start going up quickly and it jolted the dollar higher. [FRX/]
“The message from the monetary policy statement this morning is that the Bank of Japan refuses to budge, sticking with its unlimited bond buying plan to defend the 0.25% 10-year yield target,” said Arne Petimezas, senior analyst at AFS Group.
The euro hit a five-year low against the dollar of $1.04695 before paring losses. It was still on track for its worst monthly performance since January 2015.
The euro’s drop to its lowest since 2017 is rekindling the possibility it will reach parity against the dollar for the first time in two decades, as fears of a euro zone recession encourage investors to pile on the bearish bets.
The weaker yen and euro pushed the dollar index as high as 103.930, its highest level since December 2002.
Japan’s Nikkei rose 1.75%, its best day in two weeks, as investors cheered the weaker currency that helps Japanese exporters. Japanese government bonds had their best rally in a month.
U.S. government bonds rose after signs of strength in the U.S. job market outweighed an expected decline in economic growth in the first quarter. [US/]
Investors expect that U.S. rates are rising and that next week’s Federal Reserve meeting will bring the first of several consecutive 50-basis-point hikes.
Oil prices were up, with Brent crude futures gaining 1.65% and U.S. crude up by 2.85%.
German representatives to the European Union are no longer objecting a full Russian oil embargo as long as Berlin is given time to secure alternative supplies, the Wall Street Journal reported on Thursday. Germany is heavily reliant on Russian energy imports and had previously opposed a full ban. [O/R]
Spot gold prices edged higher, off a ten-week low touched earlier in the session under pressure from the stronger U.S. dollar. [GOL/]
(Reporting by Chris Prentice in Washington, Tom Wilson, Samuel Indyk and Saikat Chatterjee in London and Tom Westbrook in Singapore; Editing by Kim Coghill, Tomasz Janowski and David Evans)