Stocks hold firm, dollar cautious ahead of inflation data

[December 22, 2023]  By Amanda Cooper

LONDON (Reuters) -Global shares steadied on Friday, while the dollar inched up ahead of U.S. inflation data that could shape expectations for how quickly interest rates might fall in 2024.

Asian equities dropped after Chinese internet stocks slumped after the regulator issued draft rules that would impose spending limits on gamers. This left the MSCI All-Shares index flat on the day, but up 0.5% on the week, set for an eighth straight weekly gain, its longest stretch since early 2018.

Markets have been in festive mood for weeks as inflation data around the world has showed a slowdown and the U.S. Federal Reserve signaled it was done raising interest rates.

The S&P 500 is heading for an eighth straight weekly rise, its longest such stretch since late 2017, enjoying a "Santa rally" - where equities often rise in the week leading up to Dec. 25 - for the first time in two years.

The data has markets girding for a downside surprise on the last key number before Christmas, November's personal consumption expenditure index, due at 1330 GMT with consensus expectations for a monthly increase of 0.2%.

But with around 150 basis points of rate cuts priced into markets for 2024, there is a limit to how much more investors can bank on in terms of easing.

"I think if it does come in slightly below expectations, it's going to add fuel to that 'Santa rally'," Fiona Cincotta, market strategist at City Index, said.

"It's almost going to be the confirmation that the market is look for to cement those expectations," she said.

Overnight, U.S. stocks bounced back from a sudden slide at the end of Wednesday's session and the S&P 500 rose 1%.

The index is within 2% of its record high.

S&P 500 futures were flat while Nasdaq 100 futures were down 0.1%. Nike shares slid in premarket trading after the company cut its sales forecast, blaming cautious consumers, which in turn, weighed on European sportswear makers such as Adidas, Puma and JD Sports.

The STOXX 600 <.STOXX > was steady on the day. The index has gained nearly 13% this year. Most of that gain has materialized in the last eight weeks alone, thanks to a mighty tailwind from falling inflation in the euro zone that has fed an expectation for interest rates to drop swiftly next year.

Passersby walk past an electric monitor displaying the Japanese yen exchange rate against the U.S. dollar outside a brokerage in Tokyo, Japan October 4, 2023. REUTERS/Issei Kato/file photo

Trading in the oil market remained jittery given concerns over the security of Red Sea shipping. Oil prices recouped some overnight losses triggered by Angola saying it would quit OPEC, which has raised questions about unity among the producer group over its efforts to limit global supply.

Brent crude futures rose 0.8% to $80.00 a barrel.

TALE OF TWO HAVENS

In the currency market, the euro touched its highest against the dollar since August, rising by 0.13% to $1.1024.

The European Central Bank is expected to cut rates almost as quickly as the Fed next year, according to pricing in the futures market.

The dollar has been battered as a result in recent weeks and was last down 0.2% against a basket of major currencies.

Sterling rose 0.4% to $1.2743, shaking off government data earlier that showed the UK economy contracted by 0.1% in the third quarter and was estimated to have shown no growth in the second quarter.

The Japanese yen, which has been the worst performing major currencies against the dollar this year thanks to the Bank of Japan's policy of forcibly keeping interest rates low, was last unchanged at 142.05.

The yen has lost around 8% in value in 2023, compared with a 4% loss in the Norwegian crown, the next worst performer. Top of the pack is the Swiss franc, which has gained 7.5%, followed by the pound, with a rise of 4.7%.

Gold is set to end the week and the year ahead, with a 12% gain so far this year to $2,049 an ounce.

Bitcoin is up 160% this year to $44,114.

(Additional reporting by Tom Westbrook in Singapore; Editing by Sam Holmes and Alexander Smith)

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