GLOBAL MARKETS-European stocks and dollar rebound after China deflation jolt

Reuters · 05/11/2023 09:45
GLOBAL MARKETS-European stocks and dollar rebound after China deflation jolt

European stocks shrug off Asia wobbles to push higher

Bank of England expected to hike rates by 25 bps to 4.5%

Dollar heads higher despite U.S. debt limit row

Oil up for 5th day in last six

Graphic: World FX rates

Updates throughout after European markets open

By Marc Jones

- Europe's stock markets, the dollar and oil all had a spring back in their step on Thursday as a deflationary jolt from China made way for broader optimism ahead of what was set to be the Bank of England's 12th straight rate rise later.

Hopes that the U.S. Federal Reserve's aggressive hiking cycle may be over at least was still feeding through following inflation data there on Wednesday, with the pan-European STOXX 600 index .STOXX up 0.5% and key borrowing costs inching down. .EU

Sterling was seeing some profit taking after it had hit a one-year high and with the Bank of England poised to crank UK borrowing costs up another quarter point to 4.5% at 1100 GMT.

"We think BoE rates will eventually get up to the 4.75%-5% level," said Vanguard senior economist Shaan Raithatha citing Britain's stubbornly high inflation , especially core inflation which has been stuck around 6%.

"It feels like the BoE has been signalling since the end of last year that they are the end (of the rate hike cycle) and want to pause, but inflation has remained sticky and the market has just continued to reprice expectations."

In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS had finished down 0.3%, reversing gains in the morning session, as concerns about weak demand in China weighed on sentiment.

China's April consumer prices data rose at a slower pace and missed expectations, while factory gate deflation deepened, suggesting more stimulus may be to boost a patchy post-COVID economic recovery.

The consumer price index (CPI) in April rose 0.1% year-on-year, the lowest rate since February 2021, while the producer price index (PPI) fell at the fastest clip since May 2020, declining 3.6% year-on-year.

"Looking ahead, in year-over-year terms, we expect headline CPI inflation to accelerate modestly on continued economic recovery and PPI deflation to persist in the coming months," Goldman Sachs analysts said in a .

Markets were also watching the start of three days of Group of Seven (G7) finance leaders meetings in Japan that will seek to draw supply chains away from China - but also try to get its cooperation in solving global debt problems.

Australian shares .AXJO finished flat, as did Japan's Nikkei .N225 following a blitz of earnings and 16-month high earlier in the week.

China's blue-chip CSI300 index .CSI300 edged down 0.2%, along with Hong Kong's Hang Seng. .HIS

"While both China's CPI and PPI data are lower than expected, the market's reaction to that is very strong today," said Zhang Zihua, chief investment officer at Beijing Yunyi Asset Management.

Investors don't expect further loosening of domestic liquidity in the future."


With Wall Street futures pointing higher later .N, MSCI's main gauge of global stocks was pushing back into positive territory.

The U.S. Labor Department's Consumer Price Index (CPI) had risen 4.9% in April from a year ago, compared with analyst expectations of a 5% increase.

The Nasdaq had touched its highest in more than eight months, having also been boosted by Alphabet's GOOGL.O latest artificial intelligence plans, while the dollar =USD was up 0.3% against the major currencies and at 2-month high versus China's yuan. /FRX

Two-year US2YT=RR Treasury yields, which typically move in step with rate expectations, inched up as far as 3.9265% compared with a U.S. close of 3.901%.

But the benchmark 10-year Treasury US10YT=RR was ticking down again as the euro zone's equivalent - Germany's 10-year bond yield DE10YT=RR - fell 3 basis points (bp) to 2.262%, after a 4 bp fall on Wednesday. GVD/EUR

In the commodity markets, oil prices rose for a fifth day in the last six as strong demand for fuel in the U.S. outweighed the ongoing row about lifting the country's debt limit to prevent the world's biggest oil producer and consumer defaulting on its debt.

U.S. crude CLc1 ticked up 0.87% to $73.19 a barrel. Brent crude LCOc1 rose to $77.09 per barrel, while gold hovered just below its recent record high XAU= at $2,023 per ounce. GOL/

(Additional reporting by Julie Zhu in Hong Kong, Editing by Angus MacSwan)

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