A Look at the Day Ahead in European and Global Markets by Stella Qiu
Asian stock markets traded broadly higher as investors rekindled their interest in technology stocks, particularly Nvidia (NASDAQ: NVDA). Meanwhile, markets turned their focus towards a near-certain rate cut by the European Central Bank (ECB), and potential hints on future monetary moves.
This optimism helped counterbalance the dampening effect of fading hopes for a larger-than-expected half-point interest rate cut from the Federal Reserve next week.
Overnight, the highly anticipated U.S. inflation report showed core CPI rising by 0.28% in August, slightly above the expected 0.2% increase. This modest uptick led jittery markets to solidify their expectation of a smaller 25 basis point rate cut by the Fed next Wednesday.
As a result, short-term bond yields climbed, and the U.S. dollar gained strength, particularly against the yen, which pulled back from its 2024 high of 140.71 per dollar. The yen’s weakness fueled a nearly 3% surge in Japan’s Nikkei index, overshadowing hawkish remarks from a senior Bank of Japan official, who stated that rates may need to reach 1% over time.
In Europe, stock markets are poised for solid gains ahead of the ECB’s key policy decision. EUROSTOXX 50 futures rose 1.2%, while FTSE futures gained 1%.
A quarter-point rate cut is widely expected, but the lingering question is whether the ECB will cut rates again in October and December. Despite inflation concerns, hawkish policymakers remain in the majority, with markets pricing only a 40% chance of a move next month.
The most likely scenario is that ECB President Christine Lagarde will reiterate the bank’s stance of making decisions on a meeting-by-meeting basis, guided by incoming data during her post-meeting press conference.
Later in the day, attention will shift back to the U.S., where weekly jobless claims and producer price index (PPI) data are set to be released.
Given the Fed’s sharp focus on labor market conditions, jobless claims have taken on added significance. A worse-than-expected figure — above the forecast of 230,000 — could reignite discussions of a potential 50 basis point rate cut.
Economists expect the PPI to rise 0.1% in August. Certain aspects of this data will aid analysts in refining their projections for the Fed’s preferred inflation measure, the Personal Consumption Expenditures Price Index, which is set to be released on September 27.
Key developments to watch on Thursday:
- ECB policy meeting, followed by remarks from President Christine Lagarde.
- U.S. weekly jobless claims.
- U.S. Producer Price Index (PPI) report.
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