US inflation carries European stocks and weighs on the dollar
By Laetitia Volga
PARIS (Reuters) – European shares rose to multi-month highs on Thursday as investors continued to bet on the Federal Reserve slowing interest rate hikes after the announcement of a moderation in U.S. inflation.
In Paris, the CAC 40 rose 0.74% to 6,975.68 points, its highest closing level since mid-February, before the war in Ukraine broke out. The British Footsie gained 0.89% and the German Dax gained 0.74%.
The EuroStoxx 50 index advanced 0.66%, the FTSEurofirst 300 0.68% and the Stoxx 600 0.63%, the highest since April.
Wall Street was modestly up at the close in Europe: the Dow Jones gained 0.5%, the Standard & Poor’s 500 gained 0.14%, and the Nasdaq Composite was almost flat (+0.05%).
For the first time since May 2020, the U.S. consumer price index fell 0.1% in December, bringing its year-over-year increase to 6.5%, following a 7.1% increase a month earlier.
In the eyes of some players, these numbers could give Fed officials another argument to ease the pace of monetary tightening by the central bank and revise the interest rate forecasts, which are currently at 5.1%.
“The market remains confident that the Fed will not raise rates as indicated in its December forecasts. Fewer rate hikes create risk-on market momentum amid a weaker dollar,” said Axel Botte at Ostrum AM.
“However, it cannot be ruled out that China’s reopening will lead to an early jump in oil prices. An improvement in the outlook is already visible in industrial metal prices. In this case, market expectations will converge towards the levels indicated by the FOMC (Fed’s Monetary Policy Committee, editor’s note) (.. .) with, as a result, with the risk of correction in the stock market,” the strategist added.
The prospect of slower U.S. rate hikes weighed on the dollar, which lost 0.59% against a basket of ten currencies, its weakest since June.
Over $1.08, the euro gained 0.57%.
The yen rose to its highest level since June against the dollar (+1.97%), reacting to media reports that the Bank of Japan will study the side effects of ultra-loose monetary policy at next week’s meeting.
“We could start to see monetary policy normalization from the BoJ, which would be a big step for Japan and a very positive boost for the yen,” said ING’s Chris Turner.
The US rate cut announcement was reflected in the bond market by falling yields on government bonds: the US ten-year fell below 3.5% for the first time in a month, while the two-year fell. It hit a three-month low of 4.109%.
Europe followed suit: the ten-year German Bund yield fell six basis points to end the day at 2.131%, its lowest level since mid-December.
In Paris, video game publisher Ubisoft fell 14.03%, its biggest drop in almost seven years, after warning of annual results.
Orpea fell 17.55% after jumping more than 30% in the past three days, after the nursing home group reminded investors that talks to renegotiate its debt were still ongoing and that the planned capital increase would have “massive consequences”. dilution”.
In the rest of Europe, Logitech International lost 16.87% after posting lower October-December results and lowering its sales forecast.
British online fashion group Asos rose 20.90%, forecasting a profit of £300m for the current financial year.
Oil prices, already buoyed by optimism about China’s reopening, strengthened their gains after US inflation numbers.
Brent rose by 2.14% to $84.44 a barrel, US light crude oil (West Texas Intermediate, WTI) rose by 2.04% to $78.99.
(Laetitia Volga, Editing by Bertrand Boucey)