Stocks grind higher as investors ponder US inflation signals

LONDON: Global shares edged up on Thursday, while the US dollar slipped further below two-month highs as investors reassessed US Federal Reserve statements on inflation and looked to upcoming data for direction.

In Europe, the STOXX 600 extended earlier gains to add 0.7%, bolstered by news of German business morale hitting its highest in 2-1/2 years.

Britain's FTSE 100 share index was 0.5% higher after the Bank of England (BoE) kept the size of its stimulus programme unchanged and left its benchmark interest rate at an all-time low of 0.1%, as expected.

The MSCI world equity index was 0.1% higher, edging towards record highs hit earlier in June.

Wall Street futures pointed to a stronger open a day after the tech-heavy Nasdaq closed at a record high. S&P 500 e-minis and Nasdaq futures were both 0.5% firmer.

In Asia markets made smaller gains. MSCI's broadest index of Asia-Pacific shares outside Japan was 0.2% higher, recovering from a one-month trough touched earlier this week, while Japan's Nikkei was unchanged.

Stock markets have whipsawed over the last week, feeling the after-effects of a surprise projection for rate increases as soon as 2023 by the US Federal Reserve which knocked stocks, boosted the dollar and led to the flattening of the US bond yield curve.

Investors are now pricing the first full US interest rate rise for February 2023 compared to December 2022 in the immediate aftermath of the Fed meeting.

Overnight, 10-year US Treasury yields hovered below 1.5% in muted trading, while government bond yields in the euro area drifted higher.

"Until bond yields break out in a sustainable fashion, in either direction, it remains very hard to determine which direction stocks are headed in over the near term," JPMorgan analysts wrote in a note.

"Much continues to hinge on the upcoming growth data."

Investors awaited the latest weekly US jobless claims, expected to show that fewer Americans filed new claims for unemployment benefits in the week ended June 19 amid an improving job market recovery.

Germany's Ifo institute said its business climate index rose to 101.8 from 99.2 in May. A Reuters poll of analysts had pointed to a June reading of 100.6.

It followed the release on Wednesday of strong European manufacturing activity data. Figures on ISM manufacturing and US non-farm payrolls are due next week.

The US dollar edged further below a two-month high versus major peers as traders navigated conflicting signals from Fed officials on the timing of a withdrawal of monetary stimulus.

On Wednesday, two Fed officials said a period of high inflation in the United States could last longer than anticipated, just a day after Fed Chair Jerome Powell played down rising price pressures.

The dollar index, which measures the greenback against six rivals, was treading water at 91.773. It was at 92.408 at the end of last week, the highest since April 9.

The euro was a touch higher against the dollar, up 0.2% on the day at $1.19465.

Against the Japanese yen, the dollar climbed to a 15-month high of 111.11. It was last slightly weaker at 110.81.

The BoE's decision on Thursday was largely anticipated by economists polled by Reuters who expect the central bank will wait to see if a post-lockdown jump in inflation proves transitory and whether unemployment rises when the government scales back its job-protection scheme.

"The belief is that current levels of higher inflation are nothing more than transitionary and there is plenty of slack in the economy," said Jon Hudson, fund manager of the Premier Miton UK Growth Fund. "With household and business confidence both riding high, it is likely the bank will turn more hawkish in the autumn."

After the announcement, the British pound shed 0.4% against the dollar to $1.3907.

Oil prices dipped, but were still close to their highest in almost three years, supported by drawdowns in U.S. inventories.

Brent crude futures fell 0.1% to $75.10 a barrel and US crude edged 0.1% down to $72.99 per barrel.

Spot gold prices added 0.3% to $1,784.3 an ounce.