European shares made muted gains on Thursday, putting the brakes on two consecutive sessions of declines after hot US inflation data fuelled bets of aggressive interest rate rises by the Federal Reserve.
The regional Stoxx 600 gauge added 0.4 per cent in early dealings. London’s FTSE 100 added 0.6 per cent. In Asia, Japan’s Topix added 0.2 per cent and Hong Kong’s Hang Seng rose 0.6 per cent. China’s mainland CSI 300 lost 0.9 per cent.
Futures contracts tracking Wall Street’s S&P 500 gauge added 0.1 per cent, after closing the previous day up 0.3 per cent.
“Global markets have shown signs of stabilising over the last 24 hours,” wrote analysts at Deutsche Bank. “It was hardly a great performance [on Wednesday] and was more driven by the absence of bad news rather than any actively good news.”
A hotter than anticipated US inflation report on Tuesday had sparked a bout of selling, after the consumer price index for the world’s largest economy rose 0.1 per cent in August from the previous month, compared with expectations of a decline of 0.1 per cent. The annual rate came in at 8.3 per cent, below July’s figure of 8.5 per cent but above economists’ expectations of 8.1 per cent.
Data on Wednesday showed that prices paid to US producers for goods and services decreased last month, helped by lower petrol costs, but remained elevated. The producer price index dropped 0.1 per cent in August month on month, according to official data, in line with analysts’ forecasts. The annual rate of 8.7 per cent was down from 9.8 per cent in July and lower than economists’ forecasts of an 8.8 per cent rise.
Investors will study fresh reports on Thursday, including retail sales and industrial production data, for further clues about the health of the US economy ahead of a widely anticipated interest rate decision by the Fed next week.
Markets are now pricing in a one-in-three chance that the US central bank will raise rates by a full percentage point. Such an increase would follow two consecutive rate rises of 0.75 percentage points.
The dollar added 0.1 per cent against a basket of six peers on Thursday. The US currency had stabilised on Wednesday after jumping on the back of this week’s inflation data.
“We see a good chance that today’s data will not trigger any material re-pricing lower in Fed rate expectations, and the hawkish inertia into next week’s meeting means that the dollar can stay supported,” wrote Francesco Pesole, a foreign exchange strategist at ING.
In government debt markets, the yield on the policy-sensitive two-year US Treasury note rose 0.04 percentage points to 3.83 per cent as its price edged lower. The 10-year US Treasury yield added 0.04 percentage points to 3.45 per cent. Germany’s 10-year Bund yield added 0.06 percentage points to 1.75 per cent.
