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European stocks were mostly higher or unchanged on the day,
while U.S. futures pointed to small declines at the open on Wall
Street.
The pullback in government bond yields in recent days and a
tech-fuelled rebound have helped broader stock markets rally
this week, with a particularly strong performance Wednesday in
the United States.
But the big test for sentiment comes later in the form of U.S.
inflation numbers. Data due later on Thursday is expected to
show U.S. consumer inflation racing at a 7%-plus annualised clip
in January, a level reminiscent of the inflation shocks of the
1970s and 1980s.
The Fed is broadly expected to begin raising rates at its March
meeting although there is no clarity about the pace of
tightening.
Money markets are certain of at least a quarter point Fed hike
next month, and give 1-in-4 odds of a half point increase.
"Inflation and central banks' response to it remain front and
centre in investors' minds and while the situation has not
improved in recent weeks, there has been a clear upturn in
sentiment," said Craig Erlam, senior market analyst at OANDA.
He said investors seemed to be comfortable with four or five Fed
hikes priced in for 2021.
"Of course, that depends on inflation not spiraling out of
control, forcing the Fed to be more aggressive. The CPI data is
expected to show prices rose 7.3% in January compared to a year
ago, almost four times the Fed's target. Another reading above
here could spook the markets once more, which may explain the
cautious advance we're seeing so far today," he added.
By 0940 GMT, the Euro STOXX was 0.05% lower while the FTSE 100
was 0.1% higher and the German DAX 0.25% ahead.
In Asia, Chinese blue chips lost 0.26% as investors took profits
and worries about U.S. sanctions continued to weigh on
sentiment.
Taiwan's benchmark, however, rose while Japan's blue-chip Nikkei
was 0421% higher.
MSCI's broadest index of Asia-Pacific shares added 0.58%.
YIELDS BELOW RECENT HIGHS
Long-term bond yields continued Wednesday's retreat, with the
10-year U.S. Treasury yield slipping back to 1.923% from a near
2-1/2-year peak on Tuesday, before settling at 1.942%. Its
German counterpart was below a three-year high hit on Tuesday.
[US/][GOVD/EUR]
"It was a more positive session for global bonds, with European
bond yields taking a breather from their seemingly relentless
recent rise," Damien McColough, head of rates strategy at
Westpac, wrote in a client note.
"Even so, global bond yields have entered a bear phase and
investors are likely to demand a higher premium to invest given
inflation and policy risks ... so we remain better tactical
sellers."
Currencies were largely in a holding pattern ahead of the
inflation release, with the dollar index dipping slightly to
95.478 after bouncing off a two-week low of 95.136 on Friday. [FRX/]
One euro bought $1.144 and the yen traded at 115.82 per dollar,
down marginally on the day.
The combination of a soft dollar and lower bond yields helped
gold, which held close to a two-week high, last changing hands
at around $1,831 an ounce. [GOL/]
Crude oil prices rose after falling in Asian trading, with U.S.
West Texas Intermediate futures up 0.78% at $90.38 a barrel,
while Brent crude futures gained 0.57% to $92.07 a barrel.
(Additional reporting by Kevin Buckland in Tokyo)
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