Stocks rose on Thursday and the dollar weakened as easing US core inflation kept the potential for an interest rate cut by the Federal Reserve at bay, while the yen hit its highest level in a month on rising expectations the Bank of Japan will raise interest rates next week.
European stock futures pointed to a quiet open after the pan-European STOXX 600 posted its strongest daily performance in four months on Wednesday. STOXX 50 futures and the UK’s FTSE futures rose 0.3%.
Investors’ focus in Europe will be on luxury companies (.STXLUXP) and chipmakers (.SX8P) following strong earnings from Cartier jeweler Richemont.
CFR and AI chipmaker Taiwan Semiconductor Manufacturing Co 2330.
On Wall Street on Wednesday, all three major indexes posted their biggest daily percentage gains since November 6 – the day after the US presidential election – supported by strong earnings from JPMorgan JPM, BlackRock BLK and Goldman Sachs GS.
Asian shares followed suit on Thursday, with the MSCI index covering Asia Pacific shares outside Japan (.MIAPJ0000PUS) rising 1.2%.
The rise in risk assets came from the US inflation report which showed the consumer price index rose in line with expectations at an annual rate of 2.9% in December, while core inflation, which excludes food and energy prices, rose by 3.2%, below estimates of 3.3%.
Investors were encouraged by the inflation readings, especially as data released on Tuesday showed that US producer prices had risen modestly in December.
“This report supports the view that estimates of rate cuts this year have gone too far, and when the data comes back down… some additional easing will be back in the cards,” said Kyle Chapman, forex market analyst at the Ballinger Group.
The inflation report has traders pricing in the possibility that the Fed will cut interest rates twice by the end of this year.
This weakened the dollar against most currencies, with the DXY dollar index, which measures the greenback against six other units, at 109.07.
“We anticipate a shallow FOMC easing cycle, although we think the short-term hawkishness is overdone,” Eric Robertsen, Standard Chartered’s global head of research and chief strategist, told a media roundtable in Singapore.
“We expect the USD to be higher, although movements are expected to be volatile,” Robertsen said, noting that the strength of the US economy would be tested if tariffs imposed by the new administration led to weaker growth in other regions.
TRUMP WAITS
Investors’ focus is on President-elect Donald Trump’s policies when he returns to the White House on Monday, with recent media reports of a more gradual implementation of tariffs easing some concerns.
Analysts expect Trump’s policies to boost growth but also add to price pressures, highlighting Trump’s Jan. 20 inaugural address, which politicians and policymakers will parse for clues about his policy plans.
The Japanese yen USDJPY remained on the defensive, hitting its highest level in almost a month after comments from Governor Kazuo Ueda as traders priced in a more than 70% chance the Bank of Japan will raise interest rates next week.
“While we expect the normally cautious Ueda to wait for clarity on U.S. trade policy and confirmation of strong wage growth until the BOJ meeting in March, we acknowledge a rise is likely next week,” said Joseph Capurso, head of international economics at Commonwealth Bank . Australia.
The yen was last slightly firmer at 156.22 per dollar. The euro EURUSD was steady at $1.0285, and sterling GBPUSD was down 0.24% at $1.2215.
US Treasury yields fell after the US inflation data, with the yield on the benchmark 10-year US10Y falling 13.5 basis points to 4.653%. Last at 4.655%.
In energy markets, oil prices edged up after a bigger-than-expected drop in US crude stocks added to concerns about possible supply disruptions due to new US sanctions on Russian energy trading.
Investors will be watching developments in the Middle East as Israel intensifies its offensive against Gaza hours after a ceasefire and hostage release deal was announced to end fighting that began 15 months ago.
GOLD spot gold hit a one-month high of $2,702.09 per ounce in Asian hours following a shift in interest rate expectations.
Source: Reuters
