LONDON: Europe’s stock markets jumped and the dollar weakened Wednesday with Frankfurt striking a record on hopes that the Federal Reserve would pause its interest-rate hiking cycle.
Germany’s benchmark DAX index leapt as high as 16,332.67 points and the Paris CAC rallied, shrugging off a mixed Asian session before the Fed’s latest decision.
London’s FTSE 100 climbed also as official data showed the UK economy rebounded in April from March on buoyant consumer spending.
Stocks advance, dollar down as markets focus on rate calls
Markets had jumped Tuesday after official data showed US inflation slowed further in May, raising hopes that the US central bank would finally pause its rate-hike campaign.
‘Tailwind’
“The expected (Fed) ‘skip’ this month has provided a tailwind for markets,” said Victoria Scholar, head of investment at online trading firm Interactive Investor.
Traders were pricing in a “near-certainty” that the Fed will maintain its rates in a target range between 5.0-5.25 percent, she added.
“This will mark the first pause in the current rate hiking cycle since it started in March 2022 and follows ten consecutive rate increases.”
The sharp drop in the US consumer price index was slightly more than forecast and followed a string of recent readings that suggested 15 months of central bank tightening were beginning to kick in.
It also came after a mixed jobs report earlier this month that showed the labour market remained resilient but gave the Fed room to skip a hike in June.
The 4.0 percent annual rise in the Consuper Price Index reading marks the lowest increase since March 2021, though it is still double the Fed’s target.
Wall Street on Tuesday welcomed the inflation reading, with the S&P 500 clocking up a fourth straight gain and putting it within touch of the 4,400-point mark it has not hit since April 2021.
Traders are now pricing the chances of a rate hike on Wednesday at about 10 percent, with analysts saying bank boss Jerome Powell will try to drive home that the pause would not signal the end of tightening.
Soft landing?
“Decelerating inflation… coupled with full employment may suggest to some that the US is on a path to a soft landing of its economy and avoiding the recession that so many have been concerned about is looming for over a year now,” said Stephen Innes at SPI Asset Management.
“We expect the Fed will pause… to give more time to gauge lagged policy effects and to assess how restrictive March’s regional banks turmoil has been on lending markets.”
In Asia Wednesday, Hong Kong and Shanghai stocks struggled as investors kept tabs on China with speculation swirling that leaders would unveil a batch of measures to support the world’s number two economy, with a focus also on Beijing’s own monetary policy decision later in the week.
A surprise central bank decision Tuesday to cut a short-term lending rate fanned talk of a similar move for the medium-term rate later in the week.
Key figures around 1045 GMT
London - FTSE 100: UP 0.5 percent at 7,635.46 points
Frankfurt - DAX: UP 0.6 percent at 16,327.69
Paris - CAC 40: UP 0.9 percent at 7,356.35
EURO STOXX 50: UP 0.8 percent at 4,383.27
Tokyo - Nikkei 225: UP 1.5 percent at 33,502.42 (close)
Hong Kong - Hang Seng Index: DOWN 0.6 percent at 19,408.42 (close)
Shanghai - Composite: DOWN 0.1 percent at 3,228.99 (close)
New York - Dow: UP 0.4 percent at 34,212.12 (close)
Euro/dollar: UP at $1.0810 from $1.0796 on Tuesday
Pound/dollar: UP at $1.2643 from $1.2612
Dollar/yen: DOWN at 139.99 yen from 140.17 yen
Euro/pound: DOWN at 85.49 percent from 85.58 pence
Brent North Sea crude: UP 1.6 percent at $75.44 per barrel
West Texas Intermediate: UP 1.5 percent at $70.43 per barrel
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