FX168 Financial News (Europe) — Global stock markets rose for the fourth day in a row on Thursday (September 12), benefiting from a rebound driven by technology stocks spreading around the world. The prospect of the ECB cutting interest rates again brought short-term borrowing costs in the Eurozone close to their lowest level since the end of 2022, and the euro fell to a four-month low.
The European Stoxx 600 Index rose 1%, with the tech sector leading the way. If the increase remains unchanged, it is expected to be the best day in more than a month. Investors await the ECB's policy decision later in the day, and interest rate cuts are almost a matter of course.
S&P 500 futures were flat. Overnight gains in major US technology stocks and a rebound in commodity markets have boosted market sentiment.
The Asian market also showed strong performance. The MSCI Asia Pacific Index rose 1.5%, the biggest increase in nearly a month. The Nikkei Index rose 3.3%, driven by the weakening yen.
Global market risk appetite returned, and Wall Street stocks rebounded on Wednesday, driven by the world's largest tech companies.
In terms of company news, according to a source, OpenAI is in talks with investors to raise 6.5 billion US dollars at a valuation of 150 billion US dollars. Nvidia CEO Wong In-hoon said that the limited supply of products has frustrated some customers and caused tension.
US Treasury yields have risen. The two-year Treasury yield rose slightly by 1 basis point to 3.66%, and rose 4 basis points overnight, while the 10-year Treasury yield was 3.6665%. This flattened the 2-10-year Treasury yield curve slightly and remained at a positive level of less than 1 basis point.
The ECB resolution is coming
The European Central Bank (ECB) will hold an interest rate meeting at 20:15 on Thursday evening. It is almost certain that the ECB will cut interest rates by 25 basis points for the second time in this cycle, but the strength and speed of interest rate cuts for the rest of the year still seem uncertain. New predictions from ECB staff will be announced at this meeting.
Paul Hollingsworth, Europe's chief economist at Bank France and Pakistan, said that the new inflation forecast may actually be higher than the June forecast, although these predictions were made before the sharp drop in oil prices this month.
“We think this will turn into a gradual signal,” he added. Although Lagarde may not completely rule out the possibility of cutting interest rates again in October, it currently seems unlikely.
The market currently expects interest rates to fall to around 2% within the next 12-18 months. “But if our predictions of the basic situation are correct, then the market may have absorbed too many interest rate cuts,” Hollingsworth said.
Everyone will be watching ECB President Lagarde's speech scheduled to be delivered at 20:45, and the market is eagerly awaiting confirmation on whether interest rates will be cut further in October and December.
“Today's interest rate cuts have been completely digested. The focus of the market will be when is the next time the ECB cuts interest rates? We probably won't get much guidance from it today,” said Ben Laidler, head of stock strategy at Bradesco BBI.
“I don't think they need to take more aggressive steps. Obviously they can do this, and if the data supports it... the ECB will act slowly but steadily,” Laidler said.
“We still expect the ECB to maintain a gradual approach, weighing the risks of growth and inflation,” said Camille de Courcel, head of European interest rate strategy at Bank France and Pakistan.
Cutting interest rates by 50 basis points has become a delusion
Back in the US, solid inflation and employment data supported the Federal Reserve's cautious action. US data on Wednesday showed that the core consumer price index (CPI) rose 0.28% in August, higher than the forecast of 0.2%.
After the consumer price index (CPI) data released on Wednesday, swap traders have fully taken into account the 0.25 percentage point interest rate cut expectation in next week's Federal Reserve policy statement and abandoned their bets on a 0.5 percentage point rate cut. Currently, this possibility is only 15%.
Today, the market will receive the latest US initial jobless claims data and PPI data. Tomorrow, the market will close this week's trading with the University of Michigan Consumer Confidence Index report.
PPI is expected to increase 0.1% month-on-month and 1.8% year-on-year in August. In contrast, last month's month-on-month and year-over-year figures were 0.1% and 2.2%, respectively.
Chris Weston, head of research at Pepperstone, said, “We originally wanted answers to help resolve the debate over whether the Fed cut interest rates by 25 basis points or 50 basis points, but now the market seems to have made its own decision.”
Weston said, “We now tend to predict interest rate cuts of 25 basis points in September, but we are also willing to accept that the weak US employment report on October 4 may completely open up room for 50 basis point interest rate cuts at the November FOMC meeting.”
On the commodities side, oil prices continued to rise after Hurricane Francine affected major oil-producing regions in the Gulf of Mexico, while the price of gold surpassed 2,515 US dollars.
Forexlive pointed out that yesterday, the US CPI report failed to have the major impact of the past as expected, but the core month-on-month data unexpectedly rose. Housing costs are once again accelerating, which is worth watching in light of the upcoming cycle of interest rate cuts, as it is likely to see another acceleration in economic activity.
These data failed to provide a strong reason for gold bulls to break through, so the price of gold is likely to continue to fluctuate within the range until the Federal Reserve's decision next week, unless the number of initial jobless claims in the US surges above 0.26 million today.