Global shares cautiously higher ahead of U.S. core inflation data
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[October 27, 2023] By
Naomi Rovnick and Stella Qiu
SYDNEY (Reuters) -Global shares rose on Friday after data showed the
U.S. economy was growing robustly and traders awaited a U.S. core
inflation report later in the session that may show price pressures are
continuing to abate.
MSCI's all-country equity gauge rose 0.2% following reassuring news on
Thursday that the U.S. economy expanded at its fastest rate for almost
two years in the third quarter, while the European Central Bank (ECB)
also held interest rates steady.
Futures tracking Wall Street's tech-heavy Nasdaq 100 index added 0.7% in
response to Amazon beating sales estimates. Europe's Stoxx 600 share
index was 0.3% lower.
The yield on the 10-year U.S. Treasury, which moves inversely to the
price of the debt security and functions as a benchmark for global
borrowing costs, rose 3 basis points (bps) to 4.845% after scaling 5%
earlier in the week
Economists expect a report on Friday to show U.S. core personal
consumption expenditure, the Federal Reserve's favoured inflation
measure, declined to 3.7% in September from 3.9% a month earlier.
Still, analysts noted that any signal central banks' recent victories
against inflation were losing ground could renew speculation about even
more rate hikes to come.
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"This is a bond market that at the moment doesn't need much of an excuse
to fire a tantrum," said Simon Harvey, head of FX analysis at Monex
Europe.
The 10-year yield, which can hit stock prices when it rises by varying
the discount rate investors use to value companies' future cashflows,
has climbed from around 4% in early August.
The Fed holds its next interest rate-setting meeting next week. The
world's most influential central bank is widely expected to keep its
funds rate in a range of 5.25%-5.5%, although chair Jay Powell has said
a strong economy and tight jobs market could warrant more rate rises.
And while the ECB on Thursday also held its deposit rate at a record
high of 4%, president Christine Lagarde signalled in comments after the
decision that further monetary tightening was possible.
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An electronic board shows stock indexes at the Lujiazui financial
district in Shanghai, China, March 21, 2023. REUTERS/Aly Song/File
Photo
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The ECB had adopted "a somewhat hawkish wait and see stance," said
Martin Wolburg, senior economist at Generali Investments, noting
that a slowing euro zone economy was not a one-way street to rate
cuts now oil prices were rising.
"In the current environment, uncertainty for monetary policymaker
has increased significantly," he said.
Amid growing concerns that the Israel-Hamas conflict could spread
more widely, two U.S. fighter jets struck weapons and ammunition
facilities in Syria on Friday in retaliation for attacks on U.S.
forces by Iranian-backed militia.
Brent crude futures climbed 1.6% to $89.30 a barrel on Friday, now
6% higher since Hamas militants burst out of Gaza to attack southern
Israel on Oct. 7.
In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan
bounced 0.9% after hitting a fresh 11-month low on Thursday.
In currency markets, the euro was steady at 105.56 per dollar, now
down almost 14% in the last three months.
Thanks to rate rises and a robust U.S. economy, the index that
measures the dollar's strength against competing currencies has
risen almost 5% in three months and was on Friday on track for a
0.4% weekly gain.
The yen hit a fresh one-year low of 150.77 per dollar overnight and
was last at 150.25. It was not far off the three-decade low of
151.94 it touched in October last year that led Japanese authorities
to intervene to prop up the currency.
In recent weeks the Bank of Japan has also intervened heavily in its
bond market to suppress yields, pitting itself against market forces
as global rates have risen.
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The BoJ will face pressure at its meeting next week to shift away
from bond yield control, with any nod to tighter Japanese policy
potentially strengthening the yen and encouraging domestic investors
to sell overseas assets.
(Reporting by Stella Qiu; Editing by Sam Holmes and Jamie Freed)
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