LONDON, Sept 12 (Askume) – Stocks rose for a fourth straight day on Thursday as the prospect of another interest rate cut from the European Central Bank pushed short-term euro zone borrowing costs close to their lowest level since late 2022.
A gain in US technology stocks and a rally in commodity markets overnight also improved sentiment, but attention is increasingly turning to European Central Bank President Christine Lagarde’s upcoming message from Frankfurt.
A rate cut by the central bank is almost certain in the second quarter of this cycle , but the pace and intensity of rate cuts for the rest of the year remains uncertain, and new forecasts from ECB staff will also be released at the meeting.
Paul Hollingsworth, chief European economist at BNP Paribas, said headline inflation expectations may actually be higher than the figures set in June, although they were set before the drop in oil prices this month.
“We believe this will send a message of incrementalism,” he said, adding that even if Lagarde doesn’t completely rule out the possibility of a third interest rate cut in October, it doesn’t seem likely, at least for now.
Traders expect rates to fall to around 2% over the next 12-18 months, “but if our base case is correct,” Hollingsworth said, “then the market could see much deeper rate cuts.”
European stocks haven’t rallied as much as the rest of the world this week but were up 1%, while Wall Street tech stocks rose 2.5% on Wednesday after Magnificent 7 giant Nvidia led the way.
Bank stocks also rose by about 2% on the prospect of Italy’s UniCredit taking over Commerzbank. JPMorgan analysts said that now that Commerzbank was “incorporated,” its shares could rise by a fifth.
JPMorgan said in a research note: “Based on our sensitivities, we value CBK (Commerzbank) at 20.9 billion euros, based on a 20% premium to the current share price.”
Meanwhile, calm ahead of the European Central Bank meeting has kept the euro and sterling hovering above $1.10 and $1.30, respectively, while the rate-sensitive 2-year German bund yield has fallen to 2.18%, the lowest level since December 2022.
Overnight, MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) rose 1.6%. The Nikkei Share Average (.N225) rose 3.4%, benefiting from a weaker yen, which has fallen from a 2024 high of $140.71 against the dollar.
Technology restart
Earlier , the dollar rose about 0.2% against the yen to 142.57 yen, after coming under pressure from hawkish comments from a senior Bank of Japan official who called for a rate hike of at least 1%.
At the same time, US data released on Wednesday showed that the core consumer price index rose 0.28% in August, while a 0.2% increase was expected. This was such a big signal for the markets that they almost ruled out the possibility of the Fed cutting interest rates by half a percentage point next week, even though the probability of a rate cut was only 15%.
“We were hoping to get an answer from the Fed on Friday to help settle the debate on a 25 basis point versus a 50 basis point rate cut, but now it looks like the market has made up its mind,” said Chris Weston, research director at Pepperstone.
“We are now considering a 25 basis point rate cut in September, but due to the weak US non-farm payrolls report on October 4, we are also open to considering a 50 basis point rate cut in the November FOMC meeting. The decision will be entirely determined by the market.
Futures trading on Wall Street showed US markets are reopening, with weekly jobless claims rising fractionally.
Headline inflation data on Wednesday initially pressured the S&P 500, Nasdaq and Dow Jones, but tech stocks again came to the rescue, with artificial intelligence darling Nvidia (NVDA.O) gaining 8% after discussions of a U.S. governmentHe is considering allowing the export of advanced chips to Saudi Arabia .
Regional tech stocks in Asia also followed suit, with Taiwan (.TWII) gaining 2.8% and South Korea (.KS11) adding 1.7%.
In the interest rate market, the 2-year Treasury yield rose 1 basis point to 3.66% and rose 4 basis points overnight, while the 10-year Treasury yield was at 3.66-65%.
This has caused the 2-10 year yield curve to flatten slightly and remain positive by less than 1 basis point.
Oil prices continued to rise amid concerns that Hurricane Francine could cause prolonged production shutdowns in the United States.
Brent crude futures, which hit their lowest level in nearly three years earlier this week, rose more than 1% to $71.40 a barrel after rising 2% overnight.
Industrial lead metal copper rose 2%, its best daily gain since July, while gold rose 0.2% to $2,517 per ounce, slightly below its all-time high of $2,531.60.
