The yen has strengthened as investors anticipated the Bank of Japan will examine the unintended consequences of its ultra-loose policy. Stocks, on the other hand, edged higher on cautious optimism that US data would show inflation slowing. The MSCI world stock index has risen 0.4%, reaching its highest level in four weeks.
Data shows that headline consumer inflation in the United States had slowed to 6.5% in December from 7.1% in November, with overall inflation, (USCPFY=ECI), projected at yearly 5.7%, lower from 6% in the preceding month. Headline inflation is forecast to remain stable at 0% per month (USCPI=ECI).
USD near Lowest Level in Seven months, European Stocks Reach Highest Level since April 2022
The USD was near its lowest level against a group of currencies in seven months. On the other hand, bond prices jumped as investors anticipated a lower inflation report. The flagship index for European stocks, the STOXX 600 (.STOXX), gained 0.6%, reaching its highest level since April 2022.
The U.S. data expected at 13:30 GMT will likely have a big effect on the markets because it will show how quickly investors expect interest rates to rise in the world’s largest economy. The market has placed a higher than comparable probability of the Federal Reserve raising interest rates by a factor of 25 in February.
Banca Ifigest’s fund manager Roberto Lottici expressed fear that the market would react unfavorably to any significant downside surprise in U.S. consumer price index data.
He stated that the inline number would not add any momentum to the march. If it were a little lower, the upswing could last a few more sessions. And if it’s too low, it can send the wrong message about the state of the economy.
After reaching a seven-month high, the MSCI’s biggest index of Asia-Pacific equities from outside Japan (.MIAPJ0000PUS) increased by 0.3%. But, the Nikkei (.N225) remained unchanged in Japan.
Stable S&P 500 Futures, Rising Oil Prices, and Falling Bond Yields
Futures for the S&P 500 remained almost unchanged after Wednesday’s advances for Wall Street indices. Oil prices hit fresh one-week highs on hopes for a more accommodative rate outlook. There is a significant increase in demand while China eases COVID limits. Recently, Brent oil futures crossed the $83 threshold, with the price last seen at $83.62, higher by 1.2%.
Yields on benchmark 10-year U.S. Treasuries fell by 3.2bps on Wednesday. It brings the rate to 3.524 percent. The benchmark 10-year German yield dropped 5 basis points to 2.135%. Yields fall when bond prices rise.
Investors are depending on a revival in China to support the global economy. They are also keeping an eye on a future policy move in Japan. When the Bank of Japan unexpectedly widened the range around its 10-year government bond yield goal last month, it sent rates surging and the yen skyrocketing.
In front of U.S. CPI data, activity in other FX markets subsided, but China’s reopening provided support for currencies across Asia. As a result, the dollar index dropped 0.1% to 103.06. It is close to a seven month bottom of 102.93, which was reached this week. At 6.7499 USD, the yuan reached its highest level in five months of trading.
China reported lower consumer prices and a greater reduction in manufacturing gate prices for December on Thursday, highlighting sluggish demand that investors are anticipating would improve in the coming months.