NEW YORK/LONDON, June 30 (Reuters) - Stocks across the globe were headed on Tuesday for their largest quarterly percentage increase in six years, while Brent oil posted its largest quarterly drop since 2020, as traders kept tabs on a fragile ceasefire between the United States and Iran.
On the last day of the second quarter, the U.S. dollar was set to post its fourth straight quarterly rise against a basket of peers , while pushing the yen to a 40-year low, as expectations for U.S. interest rate hikes shifted dramatically. Emerging market currencies as a bloc (.MIEM00000CUS), gained over 1% to the greenback throughout the quarter.
In energy markets, the Strait of Hormuz has reopened gradually and haphazardly as hostilities between the U.S. and Iran receded into a fragile ceasefire, knocking almost 40% off the price of Brent oil over the past three months.
A seemingly unstoppable boom in artificial intelligence stocks kept the equities rally going for the quarter, with South Korea's KOSPI (.KS11), up 68% and Taiwan's benchmark (.TWII), up 45%. The Nasdaq Composite added more than 21%. The MSCI All-World index (.MIWD00000PUS), has gained 14% so far in the quarter and touched a record high earlier this month, marking its best quarterly performance since 2020. Emerging Market stocks (.MSCIEF), are up 23% for the period.
Europe's STOXX 600 (.STOXX), opens new tab, which does not have nearly as many AI beneficiaries as many Asian or U.S. indexes, was still up nearly 10% for the quarter, having risen every month since March.
"Investors can't see an end in sight to this bull run," said David Morrison, senior market analyst at Trade Nation. "Whenever there's a bit of a selloff, we seem to be in a situation where you get a fresh impetus to buy."
For the day, the Dow Jones Industrial Average (.DJI), rose 164.85 points, or 0.32%, to 52,347.59, the S&P 500 (.SPX), rose 64.63 points, or 0.87%, to 7,505.06 and the Nasdaq Composite (.IXIC), rose 398.23 points, or 1.54%, to 26,218.37.
MSCI's gauge of stocks across the globe (.MIWD00000PUS), rose 8.86 points, or 0.80%, to 1,120.91. The pan-European STOXX 600 (.STOXX), index rose 0.88%, while Europe's broad FTSEurofirst 300 index (.FTEU3), rose 23.73 points, or 0.93%. Emerging market stocks (.MSCIEF), rose 17.47 points, or 1.02%, to 1,724.40. Japan's Nikkei (.N225), ended up 594.21 points, or 0.86%, to 70,062.32.
DOLLAR UP
The dollar has been the standout winner this quarter among developed currencies, gaining 1.4% against a basket of peers. Yet emerging market currencies have strengthened 1.3% this quarter against the greenback.
The dollar has found support as markets increasingly price in the likelihood of Federal Reserve rate hikes. U.S. inflation remains well above target, the economy continues to grow, and the Fed's latest quarterly projections show nine of 19 policymakers anticipate a rate hike by year-end.
“The dollar has strengthened further since the (Fed) meeting, supported by widening growth differentials that we've started to see between the U.S. and other major economies which were amplified by higher oil prices,” said James Lord, head of FX EM strategy at Morgan Stanley. “Recent economic data points to stronger U.S. performance, particularly against the eurozone, where growth indicators have been comparatively softer.”
The world's most influential central bankers are in the Portuguese town of Sintra this week for the European Central Bank's annual meeting and no one will be more in the spotlight than new Federal Reserve Chair Kevin Warsh, who is scheduled to address the gathering on Wednesday.
The dollar's rise has partly driven gold to a 14% quarterly drop, its largest such fall in more than a decade, while the yen has been driven to its weakest point in 40 years to trade around 162.38 per dollar on Tuesday. Traders were on edge about a possible Japanese intervention, with Finance Minister Satsuki Katayama issuing another warning.
Katayama's comments "avoided the verbal escalation that often precedes a buying effort, instead reiterating that authorities stand ready to respond at any time," said Karl Schamotta, chief market strategist at Corpay.
That said, "we would note that Thursday's non-farm payrolls report and Friday's Independence Day holiday — when U.S. liquidity will thin dramatically — could provide attractive opportunities for wrong-footing speculative short positions," Schamotta said.
Brent crude futures for August settled 0.3% lower on the day at $72.92 per barrel. The contract posted its third-straight monthly decline, down over 20% in June and 38% for the quarter. U.S. crude was on track to fall 31% this quarter, yet both Brent and WTI are close to 20% higher year-to-date.
"I wouldn’t say the market has priced out a risk premium, but previously stranded ships have become available with the increase in ships moving out of the Gulf, creating a temporary wave of new supply," UBS analyst Giovanni Staunovo said.
Morgan Stanley said it now models an implied global oil market surplus of 4.8 million barrels per day in 2027.
Reporting by Rodrigo Campos in New York and Amanda Cooper in London; Additional reporting by Karen Brettell, Alun John, Anushree Mukherjee, Dhara Ranasinghe and Tom Westbrook; Editing by Alexander Smith, Matthew Lewis and Nick Zieminsk
