Upbeat Europe pushes world stocks to new highs

© Reuters. FILE PHOTO: An electronic screen displaying Japan’s Nikkei share average and stock prices is seen through a car as the share average hits a record high in Tokyo, Japan February 26, 2024. REUTERS/Issei Kato/File Photo

By Marc Jones

LONDON (Reuters) – World shares were eyeing more record highs on Wednesday after new peaks in Europe and on Wall Street, as investors bet hotter-than-expected U.S. inflation will not stop the Federal Reserve and other central banks from cutting interest rates.

Asian shares had hit seven-month highs overnight as a number of tech sectors there made gains, but Europe was doing even better by squeezing out its fifth all-time high in six sessions. (EU)

Volatility in foreign exchange markets remained low, however, much to the disappointment of currency dealers, ahead of the release by the European Central Bank of its highly anticipated operational framework review.

The dollar, euro, yen and pound were all little changed on the day, and though the yen looks ready to jump if Japan finally raises interest rates next week, the dollar has not moved by more than 1% in either direction since November. [/FRX]

“We are in a very, very short-term, interest rate-driven market where the overall story is a huge coalescence of expectations for rate cuts (by the Fed, ECB and BoE) around June,” Societe Generale (OTC:SCGLY) strategist Kit Juckes said.

“The big issue is euro-dollar, if they (Fed and ECB) are both going to cut three times this year … if all rates move in parallel with each other FX has nothing to go on,” he added.

Benchmark U.S. and European bond yields that tend to drive global borrowing costs were at one-week highs after Tuesday’s U.S. inflation upside surprise.

But the risk takers were still broadly in charge there too, with the gap between Italian and German 10-year yields shrinking to a fresh 26-month low and France’s central bank chief backing a “spring” ECB rate cut. [GVD/FRX]

The latest rise in Europe’s stock prices was driven by the region’s retailers as solid results from Zara-owner Inditex (BME:ITX) and a 14% surge in Zalando shares more than offset news of Adidas (OTC:ADDYY)’ first loss in 30 years due to its Kanye West problems.

Banking shares in the region hit a more than 6-year high too, while Bitcoin bustled to its third straight record high at $73,679 as crypto markets limbered up for what is known as a “halving” – where it effectively becomes tougher to mine the currency.

SUBDUED

Overnight, MSCI’s broadest index of Asia-Pacific shares outside Japan ended lower after touching its highest level since early August.

China’s property stocks took another knock amid the ongoing problems there, while Tokyo’s Nikkei also finished in the red as investors took profits on some of its near 20% surge since early December. (T)

U.S. stock index futures were looking steady after the recent run of highs there and investors await a further slew of economic data this week, including producer prices on Thursday and retail sales numbers, for more clues on the Fed’s path.

The benchmark S&P 500 hit a fresh record high on Tuesday as Nvidia (NASDAQ:NVDA) and Oracle (NYSE:ORCL) shares surged and the slightly hot consumer price data failed to dampen investors’ rate cut expectations. [.N]

Traders now see a 66% chance of the first rate cut coming in June, the CME FedWatch Tool showed. Since March 2022, the Fed has raised its policy rate by 525 basis points to the current 5.25% to 5.50% range.

“While the February CPI data was noisy across segments, we believe the U.S. economy continues to be in good shape and is heading for a soft landing,” Mark Haefele, chief investment officer at UBS Global Wealth Management, said in a note.

Dow e-minis and S&P 500 e-minis barely budged as the start of U.S. trading loomed, while Nasdaq 100 e-minis were fractionally lower. [.N]

The yen, which has been lifted from lows by growing expectations of a rate rise in Japan, was about 0.2% firmer at 147.33 per dollar after news of more wage hikes at large Japanese companies.

“We think the rate lift-off could happen in the March meeting, following the annual wage negotiation outcome to be announced this Friday,” said MUFG analyst Lloyd Chan.

In commodities, higher yields yanked gold from near record levels and it was last at $2,164 an ounce. Crude futures have been range-bound for several weeks. Brent was last 1.5% stronger at just over $83 a barrel. [GOL/][O/R]