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European stocks saw modest gains on Wednesday, with the dollar hovering near a one-week low, as markets responded to data indicating softer inflation. This rebound helped markets recover from last week’s turmoil, while investors looked ahead to U.S. inflation data due later in the day, hoping for similarly benign results.
In a significant move, New Zealand’s central bank cut interest rates for the first time in four years and signaled more monetary easing to come. This decision triggered a sell-off in the Kiwi dollar, which dropped around 1% during the day.
Meanwhile, in Japan, the yen and the Nikkei index experienced fluctuations following the announcement that Prime Minister Fumio Kishida would step down next month. Despite this, Asian markets overall rose as they continued to recover from the recent downturn.
As of 10:41 GMT, the MSCI World Equity Index had increased by 0.3% for the day, reaching its highest level in 12 days. Wall Street futures remained relatively unchanged but slightly positive, with both S&P 500 and Nasdaq futures up by 0.1%.
In Europe, the STOXX 600 index rose by 0.3%, while London’s FTSE 100 gained 0.4% after data revealed that British inflation rose less than anticipated in July. UBS shares jumped by approximately 3.1% after the bank reported a net profit of $1.1 billion for the April to June quarter, surpassing analysts’ expectations.
The global market sell-off experienced last week was largely driven by fears of a potential U.S. recession, prompting speculation that the U.S. Federal Reserve might need to cut interest rates swiftly to stimulate growth. Markets were also affected by traders abandoning the yen carry trade, as the yen strengthened following an unexpected rate hike by the Bank of Japan.
Recent U.S. economic data has helped alleviate recession concerns. On Tuesday, stocks surged after U.S. producer price data suggested cooling inflation, fueling hopes that the Federal Reserve might soon reduce rates. Traders are now keenly awaiting U.S. Consumer Price Index (CPI) data, scheduled for release at 12:30 GMT (8:30 a.m. ET), which they hope will reinforce the case for rate cuts. The markets currently price in a 51.5% chance of a 50 basis point rate cut and a 48.5% chance of a 25 basis point cut at the Fed’s next meeting in September.
“Markets are less in panic mode,” said Justin Onuekwusi, Chief Investment Officer at investment firm St. James’s Place. However, he cautioned that traders might be overly optimistic in their expectations for rate cuts.
“The market is being far too aggressive in those Fed cuts, particularly when you have hawkish-leaning Fed officials saying they are looking for more data to support cuts,” Onuekwusi added.
Atlanta Federal Reserve President Raphael Bostic echoed this sentiment on Tuesday, stating that he wanted to see “a little more data” before backing any rate cuts.
In the bond markets, the 10-year U.S. Treasury yield dipped slightly to 3.8333%, following a decline in yields after Tuesday’s U.S. producer price data. European government bond yields were slightly higher, with the German 10-year yield rising by 2 basis points to 2.198%.
The dollar index remained stable at 102.46, while the euro edged up by 0.2%, reaching its strongest level since January 2, at $1.102875.
In the commodities market, Brent crude futures fell by 0.4% to $80.39 per barrel, while U.S. West Texas Intermediate crude declined by 0.5% to $77.99. Gold prices increased by 0.4%, reaching $2,474.62 an ounce.
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