FX168 Financial News (Europe) News On Thursday (July 11), the global stock market hit a record high. Traders are waiting for the upcoming US CPI inflation data. The data is expected to show an easing in inflation, paving the way for the Federal Reserve to begin the much-anticipated interest rate cut cycle as early as September.
Today is a busy day. In addition to the US CPI data, Wall Street's earnings season has also begun. The UK released strong GDP data, and some European soccer games also brought cheers, and several central banks are adjusting interest rates.
The global stock market reached a record high
After earlier records in the US and Tokyo, MSCI's global stock index hit a record high.
The European Stoxx 600 Index rose 0.5%. After Norges Bank reported earnings that surpassed analysts' expectations, the stock price recorded its biggest increase since November 2020. Shares of Swiss chocolate maker Barry Callebaut AG (Barry Callebaut AG) fell more than 9% after the company reported disappointing results due to high cocoa bean prices.
US stock index futures remained stable on Thursday, and traders await inflation data to confirm whether expectations for the Fed to cut interest rates are reasonable.
The contracts for the S&P 500 index and the Nasdaq 100 index have not changed much. Yesterday, these benchmark indices rose more than 1%, respectively, under the impetus of companies such as Nvidia and Apple, to record highs.
Apple said it plans to increase shipments by 10% after fluctuations in 2023. The S&P 500 has been rising for seven consecutive trading days, the longest winning streak since November.
In pre-market trading in the US, individual Costco Wholesale Corp. shares rose nearly 3% due to the first increase in membership fees since 2017. Investors will also pay attention to Thursday's earnings reports from Delta Air Lines and PepsiCo to understand the health of American consumers, followed by reports from J.P. Morgan Chase, Wells Fargo, and Citigroup, which will put an end to the week.
The measure of market breadth has shrunk in recent months, and the share of S&P 500 components trading above its 200-day moving average is hovering near the lowest level in 2024.
The performance of Asian stocks is unwilling to lag behind
In Asia, Japan's Nikkei Index rose 1% to a record high of 42,426 points, while Taiwanese stocks and Australia's ASX 200 Index also hit new highs, just one step away from their all-time highs.
TSMC (TSMC) hit a record high after announcing that second-quarter sales growth was the fastest since 2022. Sony Group, Tencent Holdings, and South Korean chipmaker SK Hynix (whose transaction price hit the highest level since 2000) were major contributors to the rise in regional stock indexes.
“The main driving force is actually the prospect of interest rate cuts,” said Shane Oliver, chief economist and head of investment strategy at AMP Sydney. “If we get a good inflation data, this will meet Powell's standards.”
Federal Reserve Chairman Jerome Powell told Congress on Wednesday that the central bank does not need to reduce inflation below 2% before cutting interest rates, and pointed out that the labor market has “cooled significantly.”
“The key conclusion drawn from his testimony is that the Fed's assessment of risk balance is changing, and if supported by upcoming data, the Fed will cut interest rates in September,” said Krishna Guha of Evercore ISI.
Market Focus CPI Report
According to economists surveyed by Reuters, the US CPI rate is expected to slow to 3.1% in June from 3.3% in May, and the core CPI (excluding food and energy costs), which is considered a better measure of potential inflation, is expected to rise 0.2% in June, for the second month in a row. This will mark the smallest continuous increase since August — a rate that is more acceptable to Federal Reserve officials.
Swaps show that the Federal Reserve will cut interest rates twice in 2024, and the first rate cut is likely to be in September.
“The June CPI report looks like it will be another 'very good' report and should strengthen the FOMC's confidence in the trajectory of inflation,” Bloomberg economist Anna Wong said. “This will lay the foundation for the Federal Reserve to start cutting interest rates in September.”
Other central banks are also showing increasing confidence. The Bank of Korea kept interest rates unchanged, but did not issue an inflation warning, and Governor Lee Chang-yong told reporters that now is the time to prepare to cut interest rates. The Federal Reserve Bank of New Zealand's shift in tone on Wednesday led to a sharp adjustment in interest rate expectations. The benchmark two-year swap rate fell by 18 basis points, and the currency declined.
The bond market and the US dollar remained stable, keeping the exchange rate of the yen at a low level of 161 against the US dollar, close to the lowest level in decades, while the pound rose to a four-month high.
The data showed that after the UK economy expanded twice as fast as expected in May, the GBP/USD exchange rate rose to its strongest level since March.
“Don't be too surprised because the UK has some good GDP data and a seemingly stable government. We reached a European final, and optimism about the pound erupted after the election,” Société Générale's Kit Jukes said.
The Chinese market lags behind
China's renminbi rebounded from a nearly eight-month low to $7.2701. Although Chinese stocks are in line with market sentiment, a series of disappointing data and tariff discussions in its main export markets made the rebound difficult to sustain. China's GDP data will be released on Monday.
Since mid-May, A-shares have continued to decline due to renewed trade tension, the continuing real estate crisis, and a more frugal consumer base, and poor growth prospects. Although the benchmark index is still higher than during the February crash, some indicators suggest that market sentiment is almost as bad as it was then.
Expectations are low that the Third Plenary Session of the Central Committee next week will resolve these issues. This quinquennial conference discusses broader economic policies and a long-term reform agenda, rather than a stopgap solution to a sluggish market.
According to Bloomberg economists' analysis, China is indeed capable of ending its housing crisis with a “big bang solution.” But action is unlikely.
“Investors' consensus is that the policies introduced at the conference are hardly strong enough to reverse market sentiment,” said Yang Tingwu, partner at Fujian Tongheng Investment Ltd. “On the other hand, this also means that no matter what the whole thing brings, there won't be much disappointment.”
Oil prices have risen for the second day in a row, and market risk sentiment and signs of increased demand have boosted market sentiment.
Gold rose for the third day in a row and is currently hovering around $2,380. Marex analyst Edward Meir said that any downside accident in the CPI report could weaken the US dollar and push the price of gold to the level of 2,400 US dollars.
“I think gold is in a new pattern, in a higher trading range, and we're not going to see the old lows again. If there is a geopolitical shock this year, it could hit a new all-time high,” Meir said.