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Sterling choppy after UK budget shock, but stocks buoyed by expectations of rate cuts

The global stock market rallied on Wednesday for the fourth consecutive day as expectations of a U.S. Federal Reserve interest rate cut were high. Sterling was also whipped around by Britain's Fiscal Watchdog accidentally publishing new forecasts prior to a UK Budget release. U.S. stock prices closed higher on Wall Street. The tech sector led the way, with a gain of about 1.5%. This was partly due to Dell Technologies' nearly 7% jump after its quarterly results. Since Friday, expectations of a Federal Reserve rate cut in December have risen. This was after New York Fed president John Williams stated that interest rates could fall in the short term while other policymakers said borrowing costs should stay the same for the time being. These expectations were reinforced by comments made this week by San Francisco Federal Reserve Bank president Mary Daly and Fed governor Christopher Waller, who both supported a December rate cut.

Matthew Keator, a managing partner at the Keator Group in Lenox Massachusetts, said: "We've heard some dovish remarks from the Fed. I believe they are signaling that there could be a cut in interest rates next month." The economic data released on Wednesday revealed that weekly initial claims for unemployment fell by 6,000, to 216,000 seasonally adjusted claims in the week ending November 22. This is the lowest level of jobless claims since April. It also falls below the 225,000 estimates made by economists.

The Dow Jones Industrial Average gained 314.67 points or 0.67% to 47,427.12, while the S&P 500 rose 46.73 points or 0.69% to 6,812.61, and the Nasdaq Composite increased 189.10 or 0.82% to 23,214.69. CME's FedWatch Tool shows that expectations for a Fed cut of 25 basis points are at more than 80 percent, which is higher than the 30.1% seen a week earlier.

The U.S. market will be closed Thursday, November 22, for Thanksgiving. On Friday there will be a reduced session.

MSCI's global stock index jumped 9.31 or 0.94% to 1,000.37 and was on track for its fourth consecutive session of gains. This is its longest streak of gains in a month. The MSCI index gained 3.3% in the last four days, which is its largest four-day percentage increase since mid-May. The pan-European STOXX 600 closed up 1.09%, its largest daily percentage gain since two weeks.

The dollar index (which measures the greenback in relation to a basket currency) fell 0.26%, while the euro rose 0.22%, reaching $1.1594. The pound strengthened by 0.52%, reaching $1.3234. Currency fluctuated between a gain and a loss of 0.34% in response to the UK budget confusion, as the Office for Budget Responsibility released its Economic and Fiscal Outlook early. The British Finance Minister Rachel Reeves announced that she would be raising taxes on workers, pensioners and investors in order to achieve her deficit reduction targets.

The yields on ten-year gilts fell 7 basis points to 4.426%. The Japanese yen fell 0.25% to 156.45 dollars per dollar, even though sources said the Bank of Japan was preparing the markets for an interest rate hike that could happen as early as next month. It may be necessary to take a more gradual rate hike path in order to change the trajectory of this currency. The yield on benchmark U.S. 10-year notes shed 1 basis point to 3.992% as the rally in UK government bonds helped limit the downside for longer-dated U.S. debt after stronger-than-expected economic data fueled selling.

The yield on the 2-year note rose by 2 basis points, to 3.479%.

(source: Reuters)