Stocks surge as rate cut expectations revive; yen hits one-month high
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Global equities rose on Thursday, driven by easing U.S. inflation data that renewed hopes for Federal Reserve rate cuts, while the Japanese yen climbed to a one-month high amid expectations of a Bank of Japan rate hike next week.
European and Asian markets in focus
European stock futures signaled a modestly positive open, building on Wednesday’s strong performance where the STOXX 600 index recorded its largest daily gain in four months. Euro STOXX 50 futures advanced 1.07%, while UK FTSE futures climbed 0.52%. The focus in Europe shifted to luxury goods and chipmakers, with Richemont posting robust earnings and Taiwan Semiconductor Manufacturing Co projecting strong revenue growth.
In Asia, equities followed the bullish trend, with MSCI's broad index of Asia-Pacific shares outside Japan rising by 1.2%. The rally was supported by the U.S. Consumer Price Index (CPI) report showing annual inflation at 2.9% in December, in line with expectations, while core inflation eased to 3.2% from a forecasted 3.3%.
U.S. markets and dollar reaction
On Wall Street, major indices posted their largest gains since November 6, fueled by strong earnings from major banks such as JPMorgan, BlackRock, and Goldman Sachs. The benign inflation report led traders to price near-even odds for two rate cuts by the Federal Reserve before the year’s end, causing the dollar index to soften to 109.07 against a basket of currencies.
Eric Robertsen, Standard Chartered’s global head of research, highlighted the volatility of the USD path, noting that U.S. economic resilience could face challenges if tariffs from the incoming administration dampen global growth.
Yen gains as BoJ hike speculation grows
The Japanese yen strengthened to 156.22 per dollar, buoyed by speculation that the Bank of Japan may raise rates next week. Governor Kazuo Ueda’s remarks signaled a potential shift in monetary policy, with traders assigning over a 70% probability to a rate hike.
Joseph Capurso of the Commonwealth Bank of Australia remarked that while a BoJ hike might wait until March, a move next week remains a strong possibility. Meanwhile, the euro traded steadily at $1.0285, and sterling eased to $1.2215.
Treasury yields and commodities
U.S. Treasury yields fell sharply following the inflation data, with the benchmark 10-year yield dropping to 4.653%, marking a 13.5 basis point decline. The yield subsequently stabilized at 4.655%.
In commodities, oil prices edged higher due to a larger-than-expected drawdown in U.S. crude stockpiles and concerns over potential supply disruptions from new U.S. sanctions on Russian energy exports. Brent crude futures hovered near $82.26 per barrel, while WTI crude climbed to $80.32.
Gold hit a one-month high of $2,702.09 per ounce in Asian trading, reflecting shifting interest rate expectations and its appeal as a safe-haven asset amid ongoing geopolitical tensions.
Geopolitical developments and market sentiment
Investors remain focused on geopolitical risks, with attention on Israel and Hamas after intensified strikes in Gaza following a ceasefire agreement. Additionally, markets are closely watching President-elect Donald Trump’s inauguration on January 20 for potential policy announcements that could influence economic growth and inflation trajectories.
As markets digest the latest inflation data and geopolitical developments, global equities appear poised for further gains, while the yen’s momentum underscores growing confidence in Japan’s economic policy shift.
European and Asian markets in focus
European stock futures signaled a modestly positive open, building on Wednesday’s strong performance where the STOXX 600 index recorded its largest daily gain in four months. Euro STOXX 50 futures advanced 1.07%, while UK FTSE futures climbed 0.52%. The focus in Europe shifted to luxury goods and chipmakers, with Richemont posting robust earnings and Taiwan Semiconductor Manufacturing Co projecting strong revenue growth.
In Asia, equities followed the bullish trend, with MSCI's broad index of Asia-Pacific shares outside Japan rising by 1.2%. The rally was supported by the U.S. Consumer Price Index (CPI) report showing annual inflation at 2.9% in December, in line with expectations, while core inflation eased to 3.2% from a forecasted 3.3%.
U.S. markets and dollar reaction
On Wall Street, major indices posted their largest gains since November 6, fueled by strong earnings from major banks such as JPMorgan, BlackRock, and Goldman Sachs. The benign inflation report led traders to price near-even odds for two rate cuts by the Federal Reserve before the year’s end, causing the dollar index to soften to 109.07 against a basket of currencies.
Eric Robertsen, Standard Chartered’s global head of research, highlighted the volatility of the USD path, noting that U.S. economic resilience could face challenges if tariffs from the incoming administration dampen global growth.
Yen gains as BoJ hike speculation grows
The Japanese yen strengthened to 156.22 per dollar, buoyed by speculation that the Bank of Japan may raise rates next week. Governor Kazuo Ueda’s remarks signaled a potential shift in monetary policy, with traders assigning over a 70% probability to a rate hike.
Joseph Capurso of the Commonwealth Bank of Australia remarked that while a BoJ hike might wait until March, a move next week remains a strong possibility. Meanwhile, the euro traded steadily at $1.0285, and sterling eased to $1.2215.
Treasury yields and commodities
U.S. Treasury yields fell sharply following the inflation data, with the benchmark 10-year yield dropping to 4.653%, marking a 13.5 basis point decline. The yield subsequently stabilized at 4.655%.
In commodities, oil prices edged higher due to a larger-than-expected drawdown in U.S. crude stockpiles and concerns over potential supply disruptions from new U.S. sanctions on Russian energy exports. Brent crude futures hovered near $82.26 per barrel, while WTI crude climbed to $80.32.
Gold hit a one-month high of $2,702.09 per ounce in Asian trading, reflecting shifting interest rate expectations and its appeal as a safe-haven asset amid ongoing geopolitical tensions.
Geopolitical developments and market sentiment
Investors remain focused on geopolitical risks, with attention on Israel and Hamas after intensified strikes in Gaza following a ceasefire agreement. Additionally, markets are closely watching President-elect Donald Trump’s inauguration on January 20 for potential policy announcements that could influence economic growth and inflation trajectories.
As markets digest the latest inflation data and geopolitical developments, global equities appear poised for further gains, while the yen’s momentum underscores growing confidence in Japan’s economic policy shift.