World shares held close to record highs on Wednesday thanks to new all-time peaks in Europe and on Wall Street, as investors bet hotter-than-expected US inflation won’t stop the Federal Reserve and other central banks from cutting interest rates.
Asian shares hit seven-month highs overnight as a number of tech sectors made gains, but Europe went even better early on by squeezing out its fifth record high in six sessions.
Volatility in currency markets remained low, however, much to the disappointment of FX dealers and despite the European Central Bank being set to publish its highly anticipated operational framework review later in the day.
The dollar, euro, yen and pound were all little changed on the day, and though the yen looks ready to pounce if Japan finally raises interest rates next week, the dollar hasn’t moved by more than 1% in either direction since November.
“We are in a very, very short-term, interest rate-driven market where the overall story is a huge coalescence of expectations for rate cuts (by the Fed, ECB and BoE) around June,” Societe Generale strategist Kit Juckes said.
“The big issue is euro-dollar, if they (Fed and ECB) are both going to cut three times this year … if all rates move in parallel with each other FX has nothing to go on,” he added.
Benchmark US and European bond market yields that tend to drive global borrowing costs were at one-week highs after Tuesday’s US inflation upside surprise.
But the risk takers were still in charge there too, with the gap between Italian and German 10-year yields shrinking to a fresh 26-month low.
The latest rise in Europe’s stock prices was driven by the region’s retailers as solid results from Zara-owner Inditex and a 14% surge in Zalando shares more than offset news of Adidas’ first loss in 30 years due to its Kanye West problems.
Bitcoin bustled to its third straight record high at $73,400 as crypto markets continued to sizzle ahead of what is known as a ‘halving’ where it effectively becomes tougher to mine the currency.
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Overnight, MSCI’s broadest index of Asia-Pacific shares outside Japan ended lower after touching its highest level since early August.
China’s property stocks took another knock amid the ongoing problems there, while Tokyo’s Nikkei also finished in the red as investors took profits on some of its near 20% surge since early December.
U.S. stock index futures were also subdued as investors awaited a slew of economic data this week, including producer prices on Thursday and retail sales numbers, for more clues on the Fed’s rate-cut path.
The benchmark S&P 500 climbed to a fresh record high on Tuesday as Oracle shares surged and slightly hot consumer price data failed to dampen investors’ hopes for interest rate cuts in the coming months.
Traders now see a 66% chance of the first rate cut coming in June, the CME FedWatch Tool showed. Since March 2022, the Fed has raised its policy rate by 525 basis points to the current 5.25% to 5.50% range.
“While the February CPI data was noisy across segments, we believe the US economy continues to be in good shape and is heading for a soft landing,” said Mark Haefele, chief investment officer at UBS Global Wealth Management, in a note.
Dow e-minis 1YMcv1 and S&P 500 e-minis EScv1 barely budged in Europe, while Nasdaq 100 e-minis NQcv1 were fractionally lower.
The yen, which has been lifted from lows by growing expectations of a rate rise in Japan, was about 0.2% firmer at 147.33 per dollar after news of more wage hikes at large Japanese companies.
“We think the rate lift-off could happen in the March meeting, following the annual wage negotiation outcome to be announced this Friday,” said MUFG analyst Lloyd Chan.
In commodities, higher yields yanked gold from near-record levels and it was last at $2,157 an ounce. Crude futures have been rangebound for several weeks. Brent was last 0.5% stronger at $82.36 a barrel.
