Stocks rise as traders bet central banks will keep interest rates on hold

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Global stocks rose on Thursday, as steady inflation data on both sides of the Atlantic persuaded traders to raise their bets that central banks will keep interest rates on hold for longer.

Wall Street’s benchmark S&P 500 rose 0.2 per cent and the tech-focused Nasdaq Composite added 0.3 per cent at the New York opening bell.

The region-wide Stoxx Europe 600 was 0.2 per cent higher, while Germany’s Dax advanced 0.7 per cent and London’s FTSE 100 rose 0.1 per cent.

Traders turned optimistic after inflation reports in the US and Europe were in line with expectations. In the US, the headline personal consumption expenditures index — the Federal Reserve’s preferred inflation gauge — increased to an annualised rate of 3.3 per cent in July, from 3 per cent in June.

The rise matched the forecasts of economists polled by Reuters, allowing the majority of market participants to stick to their bets that the Fed will keep its benchmark federal funds rate steady at the next policy meeting.

The dollar, which climbs when investors expect high rates, added 0.4 per cent against a basket of six peer currencies, while yields on the policy-sensitive two-year US Treasuries added 0.02 percentage points to 4.9 per cent.

The euro fell 0.7 per cent against the dollar after preliminary consumer price data for the eurozone 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.

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 its 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 ECB 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 6.3 per cent, while the Stoxx 600 Europe Financial Services index rose 1.6 per cent.

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.