US stocks advanced at the open on Thursday after cooler than expected inflation data supported traders’ hopes that the US economy would have a soft economic slowdown this year.
The blue-chip S&P 500 rose 0.3 per cent, while the tech-heavy Nasdaq gained 0.9 per cent at the open in New York.
In Europe, the region-wide Stoxx 600 rose 0.3 per cent, London’s FTSE 100 was up 0.1 per cent and Germany’s Dax was down 0.1 per cent. France’s Cac 40 was the standout gainer, rising 1 per cent as strong earnings from LVMH boosted demand for luxury stocks.
Traders took heart from figures showing that core producer price index fell 0.1 per cent in March, compared with expectations of another rise. Initial jobless claims also came in marginally above expectations, at 239,000.
“There’s a lag in terms of the employment data because of how it is calculated by law when people are laid off,” said Steven Blitz, chief US economist at TS Lombard. “This might well be the first shot across the bow, the unemployment rate will start climbing faster than people are expecting, and once that happens the Federal Reserve will start cutting [interest rates].”
Minutes on Wednesday from the Federal Open Market Committee meeting in March showed officials predicting a “mild recession” starting later this year, before the economy recovers over the next two years.
Overnight economic data from the US showed headline inflation was down to 5 per cent, the lowest reading since July. However, core CPI, the measure preferred by the Fed because it strips out volatile food and energy prices, rose to 5.6 per cent.
Investors are weighing the impact of the data and the economy shrinking on the Fed’s next meeting in May. Investors have grown more confident that falling inflation will persuade the Fed to moderate the pace of interest rate rises to combat consumer price pressures.
Swaps markets predict a 70 per cent chance of a 0.25 percentage point increase over no change, according to data from Refinitiv.
In Europe, investors are pricing in a more hawkish path from the European Central Bank, with nearly a two in three chance of a 0.25 percentage point rise and roughly a one in three chance of a larger half-point increase.
Governing council member Robert Holzmann said on Wednesday that the ECB should raise rates by 0.5 percentage points because the “danger of currently doing too little and to fan inflation is bigger than the risk of doing too much”.
European industrial production data released on Thursday was above forecasts at 1.5 per cent, a half percentage point higher than the previous month. German 10-year Bund yields fell 0.02 percentage points to 2.33 per cent.
Two-year Treasuries fell 0.06 percentage points to 3.9 per cent and 10-year notes dropped 0.03 percentage points to 3.38 per cent.
“With the US economy cooling and a Fed pivot not imminent, we believe the environment for equities will remain challenging in the coming months,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.
In Asia, Hong Kong’s Hang Seng index closed up 0.2 per cent and China’s CSI 300 was down 0.7 per cent.
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