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The euro fell and European stock markets rose on Thursday after inflation in the eurozone steadied, raising hopes among traders that the central bank would hold off on further interest rate rises.
The region-wide Stoxx Europe 600 was 0.4 per cent higher, while Germany’s Dax advanced 0.8 per cent and London’s FTSE 100 gained 0.2 per cent.
The euro fell 0.5 per cent against the dollar after preliminary consumer price data for the bloc showed that the annual rate of core inflation fell to 5.3 per cent in August, down from 5.5 per cent in the previous month.
Yet headline inflation came in at 5.3 per cent, unchanged from the previous month, outpacing the 5.1 per cent forecast of economists polled by Reuters. Single-country inflation figures from France and Germany also came in higher than expected ahead of the region-wide report.
Investors hoped the uncertainty over the pathway for eurozone inflation weakened the case for the European Central Bank to increase interest rates at the next meeting in September.
“The headline does matter because it obviously does feed through into inflation expectations, but the detail of the report was more reassuring, because it does suggest that we’ve seen a peak in core inflation in the euro area now,” said Michael Metcalfe, head of macro strategy at State Street Global Markets.
Traders priced in a 70 per cent chance that the central bank would keep rates steady next month, up from about 57 per cent earlier in the day, according to data compiled by Refinitiv and based on interest rate derivatives prices.
In government debt markets, the yields on policy-sensitive two-year German Bunds fell 0.06 percentage points to 3 per cent, while yields on the 10-year Bunds, a regional benchmark in Europe, declined by 0.04 percentage points to 2.5 per cent. Bond yields rise as prices fall.
Meanwhile, financial stocks were boosted by news that UBS would absorb Credit Suisse’s domestic bank, supporting the country’s banking sector. Its shares rose 5.6 per cent, while the Stoxx 600 Europe Financial Services index rose 1.6 per cent.
Futures contracts tracking Wall Street’s benchmark S&P 500 added 0.2 per cent and those tracking the tech-focused Nasdaq 100 rose 0.1 per cent ahead of the New York open.
Both indices advanced in the previous session, as weak US growth and labour market data bolstered investors’ bets that the Federal Reserve would hold back from further interest rate increases this year.
“US data wasn’t very remarkable but it was all dovish”, said Mike Zigmont, head of research and trading at Harvest Volatility. “The case for the Fed to hike again is receding.”
Traders were awaiting the release of personal consumption expenditures data — the Fed’s preferred measure of inflation — on Thursday, as well as the closely watched non-farm payrolls data on Friday.
Chinese stocks were led lower by a weak property sector on Thursday, after Country Garden, once the country’s largest developer by sales, reported record losses. China’s CSI 300 and Hong Kong’s Hang Seng both fell 0.6 per cent.
The CSI 300 Real Estate index, which tracks property stocks listed on mainland exchanges, declined 5.3 per cent. Hong Kong’s Hang Seng Mainland Properties index lost 1.9 per cent, erasing early gains.
The country’s equity markets were also hit by weak data on factory activity, with the official manufacturing purchasing managers’ index coming in at 49.7 for the month, below the neutral 50 mark that indicates a contraction.
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