(Bloomberg) — Stocks posted mostly modest gains as investors awaited U.S. inflation data that will help clarify the path for Federal Reserve policy.
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The European Stoxx 600 index rose 0.4%, moving away from session highs, and US stock futures pared previous gains. Meanwhile, the Asian stock index rose more than 1% as Japanese stocks reached a new three-decade high. Treasuries rose, while the dollar fell against most of its G10 peers.
The US inflation report is at the forefront of traders’ minds on Thursday. More evidence of easing price pressures will support optimism about expectations for Fed rate cuts, but a hot reading could spur volatility. Economists tracked by Bloomberg expect year-over-year core inflation to fall to 3.8% in December data from 4% the previous month.
“Confirmation of the decline in prices will boost confidence that a cut can be expected in May, and that could lead to some rally in stocks and bonds,” said Stuart Cole, chief macro economist at Equity Capital in London. “But you have to be aware of the fundamental component of the CPI. If service prices keep going in the wrong direction, that will likely halt any rise.”
Cryptocurrency stocks extended gains in pre-market trading in the US after the Securities and Exchange Commission first approved exchange-traded funds that invest directly in Bitcoin. The largest cryptocurrency briefly rose to $47,000 in a muted rally after the green light. The largest digital currency has already jumped more than 160% in the past 12 months in anticipation of ETFs as well as more flexible monetary policy.
In Asia, Japanese benchmark indices hit their highest levels in three decades, thanks in part to the recent weakness of the yen. Strategists also said a newly introduced tax-free retirement savings program may help attract more domestic flows into the market.
“The recent rise shows that in general, domestic retail investors and foreign investors have been forced to change their attitude towards Japanese stocks to a more positive one,” said Ikuo Mitsui, fund manager at Aizawa Securities. Investors who are late to the market are buying to watch the index rise.
Investors are bracing for a bout of turmoil in Treasuries when US consumer price data is released later. Bond traders have trimmed their bets on Treasury gains this month, and the swap market is showing less chance of Fed cuts expected by March than pricing late last year.
New York Fed President John Williams said Fed officials need to see more signs of a slowdown in the economy before cutting interest rates, but noted that current policy levels are sufficient to bring inflation back to the central bank’s target. The tone of the comments differed from those he made on December 15, when he said the near-term question was whether policy was “sufficiently restrictive” to ensure inflation returned to 2%. He also added at the time that officials “aren’t really talking about interest rate cuts.”
However, JPMorgan Asset Management says the Fed may end up cutting interest rates further than it is currently indicating as the US economy slows, triggering a rally in short-term Treasuries.
Oil added to gains as tensions in the Middle East continued, while gold also rose.
Main events this week:
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US Consumer Price Index, Initial Jobless Claims, Thursday
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China CPI, Producer Price Index, Trade, Friday
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UK industrial production, Friday
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US Producer Price Index, Friday
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Some of the largest U.S. banks report fourth-quarter results on Friday
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Minneapolis Fed President Neel Kashkari speaks on Friday
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European Central Bank chief economist Philip Lane speaks on Friday
Some key movements in the markets:
Stores
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The Stoxx Europe 600 Index was up 0.4% as of 9:53 a.m. London time
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S&P 500 futures rose 0.2%
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Nasdaq 100 futures rose 0.4%.
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Dow Jones Industrial Average futures rose 0.1%
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The MSCI Asia Pacific Stock Index rose 1.1%.
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MSCI Emerging Markets Index rises 0.6%
Currencies
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The Bloomberg Dollar Spot Index was little changed
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There was little change in the euro at $1.0965
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The Japanese yen rose 0.2 percent to 145.48 yen to the dollar
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The yuan in external transactions rose 0.2% to 7.1716 yuan to the dollar
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The British pound was unchanged at $1.2742
Digital currencies
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Bitcoin rose 0.7% to $46,259.76
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Ether rose 3.3% to $2,610.3
Bonds
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The yield on the 10-year Treasury note fell four basis points to 3.99%.
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The yield on 10-year German bonds was little changed at 2.21%.
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The yield on British 10-year bonds fell by three basis points to 3.78%.
Goods
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Brent crude rose 1.5 percent to $77.96 a barrel
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Gold in spot transactions rose 0.4 percent to $2,032.45 per ounce
This story was produced with assistance from Bloomberg Automation.
–With assistance from Richard Henderson, Chiranjeevi Chakraborty and Jean-Patrick Barnert.
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