Stock exchanges lifted by surge of exuberance

London — World stock markets rose on Thursday ahead of key US inflation data and amid widespread excitement in the crypto world after the US approved the first exchange traded funds (ETFs) to track bitcoin.

MSCI’s top world index was up 0.3% as London, Paris and Frankfurt all swept higher. Tokyo’s Nikkei breached the 35,000 point barrier for the first time since 1990 overnight in Asia.

The exuberant mood looked likely to continue on Wall Street, where E-mini futures for the S&P 500 were up 0.3% and all the main volatility and fear gauges were pointing down.

Market attention has zeroed in on the upcoming US consumer price index report (CPI) for December. Core CPI is forecast to remain unchanged at 0.3% from the month before, while year-on-year inflation is expected to slow to 3.8% from November’s 4%, a Reuters poll showed.

“The risk is that markets sell off on a strong print,” said Ben Bennett, APAC investment strategist for Legal and General Investment Management (LGIM). “The reaction could be more muted if we get a soft number.”

US treasury yields, which are driving global borrowing costs at the moment, were hovering just under 4% in Europe. Germany’s equivalent 10-year yield briefly hit its highest in almost a month early on in Europe after some hawkish comments from European Central Bank (ECB) member Isabel Schnabel on Wednesday, but then reversed to settle at 2.19%.

Since the start of the year, investors have been rethinking just how sharply and early the Fed and others will cut interest rates. Fed futures prices indicate traders anticipate 140 basis points (bps) of easing in 2024 compared with 160bps of cuts expected at the end of 2023.

Still, it is higher compared with the Fed’s projection of 75bps of cuts in the year. Markets are pricing in a 69% chance of a rate cut as soon as in March, the CME FedWatch tool showed.

Federal Reserve Bank of New York president John Williams said on Wednesday it is too soon to call for rate cuts as the central bank still has some distance to go on getting inflation back to its 2% target.

Bennett said investors are underestimating the risk of a US recession. “Soft CPI prints could eventually become a sign of disappointing demand. But that’s probably still a while away.”

Crypto markets were the day’s other main focus after US regulators late on Wednesday approved the first US-listed ETFs to track bitcoin. Though long expected, the green light marks a watershed moment for the world’s best-known cryptocurrency, with most of the new funds expected to begin trading on Thursday.

Standard Chartered’s head of digital assets research, Geoff Kendrick, has estimated the approval, along with bitcoin’s “halving” in April, which cuts the currency’s supply and historically kick-starts price rises, could send it to $100,000 by the end of the year.

“If ETF-related inflows materialise as we expect, we think an end-2025 level closer to $200,000 is possible,” he said, assuming that between $50bn and $100bn would flood into the new US ETFs by the end of the year.

On Thursday, bitcoin was little changed and a shade above $46,000, having surged more than 70% since October in anticipation of the decision from the regulator.

In the more traditional parts of the currency market, the Japanese yen recouped some of its losses and was last at ¥145.43 to the dollar, having dropped 0.9% overnight. Data this week showed Japanese workers’ real wages shrank for a 20th straight month in November, confounding officials’ wishes to see wage gains before lifting interest rates.

The dollar was steady ahead of the US inflation report, which in turn helped gold rise 0.5% to $2,033.92/oz. Oil put on more than 1.5% to leave Brent at $78 a barrel. It dropped nearly a dollar in the previous session after a surprise jump in US crude stockpiles raised worries about demand in the largest oil market.

Investor focus will also be on the US earnings season, with banking giants JPMorgan Chase, Bank of America, Citigroup and Wells Fargo all due to report earnings on Friday.

Reuters