European stocks steady ahead of inflation data, yen near 38-year low

European Stocks Directionless as Traders Await Key Inflation Data

European stocks struggled to find direction in early trading on Thursday as traders awaited crucial inflation data and monitored potential intervention by Japanese authorities following further declines in the yen.

In Asian trading, shares fell and bond yields spiked after surprise inflation data jumps in Australia on Wednesday and Canada on Tuesday, causing investor nervousness.

As of 08:11 GMT, the MSCI World Equity index was down 0.1%. The pan-European STOXX 600 was up by less than 0.1%, stabilizing after two days of declines. London’s FTSE 100 was slightly lower, while Germany’s DAX was up 0.2%.

Traders are particularly focused on Friday’s U.S. personal consumption expenditures (PCE) data, the Federal Reserve’s preferred inflation measure, which could influence the outlook for U.S. interest rates. France, Italy, and Spain are also set to release inflation data on Friday.

Fiona Cincotta, senior markets analyst at City Index, noted the cautious market sentiment. “No one’s really going to be wanting to take any large positions ahead of tomorrow’s inflation data,” she said. “In Europe, you’ve got political uncertainty also limiting any upside ahead of the French elections.”

The first round of French parliamentary elections is scheduled for Sunday.

Eurozone government bond yields reached their highest in two weeks, with the benchmark German 10-year yield up 3 basis points at 2.476%. The risk premium on French debt neared a seven-year high amid concerns over far-right or far-left parties potentially winning the elections. U.S. Treasury yields also rose, with the 10-year U.S. Treasury yield up 3 basis points at 4.3411%.

Persistent inflation and strong economic data have delayed expectations for U.S. rate cuts. Upcoming U.S. jobless claims data could influence this outlook. “If we get lower than expected jobless claims, that could really add fuel to the fire that the Fed may not even cut rates this year,” Cincotta added.

Elsewhere, eurozone bank lending data showed lending remained near multi-year lows.

Yen Watch

The Japanese yen hovered near its weakest level in 38 years against the U.S. dollar, keeping markets alert for any intervention signs. The dollar-yen pair traded at 160.57, with the yen slightly strengthened from Thursday’s peak of 160.88.

Japanese Finance Minister Shunichi Suzuki indicated readiness to take necessary actions on currencies and expressed deep concern over the yen’s impact on the economy. ING analysts suggested authorities might wait until after Friday’s U.S. PCE data before intervening. “Should U.S. data fuel more USD strength, then intervention would become almost inevitable – but with the new line in the sand potentially closer to 165,” ING FX strategist Francesco Pesole wrote.

The U.S. dollar index was marginally lower at 106, while the euro rose by less than 0.1% to $1.0685.

The Swedish crown weakened after Sweden’s central bank held its key interest rate at 3.75% as expected and hinted at possible rate cuts later in the year if the inflation outlook remained unchanged.

Oil prices edged higher, with Brent crude futures up 0.5% at $85.65 a barrel and U.S. West Texas Intermediate crude futures up 0.4% at $81.26 per barrel. Gold prices increased by 0.2% to $2,2303.3.