By Marc Jones
LONDON (Reuters) – World stocks idled near all-time highs and there was little reaction from either the euro or the dollar on Thursday after the European Central Bank kept its interest rates steady and U.S. inflation data nudged higher.
The ECB’s hold at 2% had been widely expected and with it trimming its inflation forecasts and its chief Christine Lagarde in the midst of her press conference, traders were waiting for any kind of signal on when another rate cut might come.
The euro ticked fractionally lower to $1.1672 having soared nearly 13% versus the dollar this year, while the bond vigilantes hadn’t yet managed to decisively push politically strained France’s borrowing costs above Italy’s. [GVD/EUR]
August U.S. consumer price inflation data had just come in too at headline rate of 2.9% from a year earlier – the highest rate since January – while the core measure held at 3.1%.
That was almost bang in line with forecasts so stock markets largely shrugged.
Wall Street futures stuck to pricing more record highs for the S&P 500 and Nasdaq after a 36% leap in Oracle shares on Wednesday had been the latest driver, while the pan European STOXX 600 was up 0.4% ahead of Lagarde. [.EU]
ABN AMRO strategist Benoit Begoc said with the ECB having been widely expected to hold rates, the focus is on whether Lagarde keeps the door ajar for further cuts any time soon.
“I think the question will be why are you not cutting rates more?” Begoc said. “We know we have some deflationary pressures and there is no big rise in consumer confidence, so what is the rationale behind that?”
Oracle’s U.S. surge meanwhile had helped Asia overnight where Japan, Taiwan and South Korea’s main bourses all scored record peaks too.
As Lagarde started to speak, Germany’s 10-year bond yield eased to 2.63% having touched 2.80% – its highest since March – just last week. [GVD-EUR]
In the commodity markets, oil prices also dipped 1.2% after gaining for three days straight. On Wednesday Poland’s downing of suspected Russian drones had triggered fresh talk of sanctions while Israel attacked Hamas leadership in Qatar the day before. [O/R]
Safe-haven gold edged away from its recent record highs too and bellwether metal copper took a breather from its more than 20% rally since U.S. President Donald Trump’s trade tariffs shook global markets back in April. [/GOL]
TRADERS BET ON TRIO OF FED CUTS
The higher U.S. consumer price data was not expected to prevent a much-anticipated interest rate cut from the Federal Reserve next week given recent signs of weakness in the jobs market.
Wall Street futures pointed to more fractional gains when markets resume at record levels shortly. Oracle’s 36% leap on Wednesday had been the biggest one-day gain since 1992 for the 48-year-old tech giant. [.N]
Investors have now fully priced in a quarter-point move from the Fed at next week’s meeting, with an 8% chance of a 50 basis-point cut.
“Despite the modest inflation uptick, market expectations remain anchored around a 0.25% rate cut next week” Katy Stoves, an Investment Manager at Mattioli Woods said, adding a more aggressive 0.5% “mega cut” remained unlikely despite the labour market concerns.
Turkey’s central bank was also back in the spotlight as it cut its interest rates by a larger-than-expected 250-basis-point amid rising concerns about a clampdown on the country’s political opposition and after recent higher-than-expected inflation.
In foreign exchange, movement was largely muted, with the U.S. dollar struggling for direction and the main six currency dollar index a touch above a seven-week trough.
Ten-year Treasury yields held at 4.03%, having fallen 4 basis points on Wednesday after the PPI data and as a solid 10-year note auction alleviated some concern about investor appetite for long-term U.S. debt.
An even more telling gauge will be the Treasury’s $22 billion sale of 30-year bonds on Thursday. The 30-year yield trod water at 4.68%, having come down more than 30 basis points since it briefly topped 5% a week ago.
(Reporting by Marc Jones; Editing by Alexandra Hudson)
