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World stocks were near record highs on Thursday amid a monthly round of European and US inflation data, while cryptomarkets were roaring bitcoin on to its best month in over three years.
European bourses shuffled higher in what will be their fourth monthly rise and one that has seen the big worldwide indexes (.MIWD00000PUS) set all-time peaks for the first time since the start of 2022.
It was just after that the US Federal Reserve started hinting at higher interest rates and Russia invaded Ukraine, compounding a global spike in inflation that is only now easing.
The day’s main event was the release of the Fed’s preferred inflation gauge, the personal consumer expenditures (PCE) price index, but Europe had plenty to offer too.
Readings from Germany pointed to inflation there still on a downward trajectory. French consumer prices rose 3.1 per cent year-on-year, down from the previous 3.4 per cent figure recorded in January although slightly higher than forecasts.
It was a similar picture in Spain, where annual inflation dropped to 2.9 per cent in February, down from 3.5 per cent in January although it was in line with expectations.
It left bond markets and the euro and dollar struggling for direction, especially with the bar set high for US PCE later after the recent dialling back of rate cut bets.
“We need a super, super, super strong PCE print for people to add to dollar risk,” senior FX and Macro strategist at BNY Mellon, Geoff Yu, said.
“If you look at the equity markets, dollar/yen there have been a lot of correlated trades this year,” he added. That also means that if US equities begin to fall at any point, “a lot of other things will come off too”.
The yen had gained overnight as a Bank of Japan (BOJ) official hinted at the need to exit ultra-easy monetary stimulus, although the real excitement was over bitcoin which was up 3.5 per cent on the day and nearly 50 per cent this month.
It will be its biggest monthly gain in more than three years and at $62,315 in Europe on Thursday it is within range of its late 2021 record high of just under $69,000.
“If this were any other market, it would likely be in the ‘blow-off top - don’t go near that bubble’ category,” said Matt Simpson, senior market analyst at City Index. “But bitcoin is back in its parabolic-rally phase”.
The approval and launch of spot bitcoin exchange-traded funds in the US this year has opened the asset class to new investors and reignited the excitement that was sapped when prices collapsed in the “crypto winter” of 2022.
LSEG data showed flows into the 10 largest spot bitcoin ETFs brought in $420 million on Tuesday alone, the most in almost two weeks. The three most popular, run by Grayscale , Fidelity and BlackRock (IBIT.O) saw volumes surge.
Fine China
Wall Street futures were in the red, following modest falls for all three major indexes on Wednesday. S&P 500 futures pointed down 0.25 per cent and Nasdaq futures fell 0.3 per cent.
Investors are wary ahead of the PCE release later after pushing back bets for a first Fed rate cut to June. At the start of the year, wagers were on the Fed cutting rates in March.
In Asia overnight, mainland Chinese blue chips (.CSI300) jumped nearly 2 per cent, recovering after a 1.3 per cent slide in the previous session, amid hopes that more aggressive stimulus steps will emerge from next week’s annual session of the National People’s Congress, when the year’s growth target will be set.
For the month, the CSI 300 index ended up 9.3 per cent - which is its best monthly performance since November 2022 and would snap a six-month streak of declines - supported mainly by state-led buying and tighter regulations.
Taiwan (.TWII) advanced 0.6 per cent, and Australia (.AXJO) gained 0.5 per cent. Hong Kong’s Hang Seng (.HSI) and Japan’s Nikkei share average (.N225) both ended the day down just over 0.1 per cent. It was really just a breather though. The Nikkei had hit a record high on Tuesday.
“Price action has been very subdued going into the (US inflation data), which signals some cautiousness,” said Kyle Rodda, senior markets analyst at Capital.com.
BOJ Tease
The US dollar index (.DXY) which measures the currency against six major peers including the yen, euro and sterling, edged 0.2 per cent lower to 103.77 although was still fractionally higher for February.
Most of day’s weakness was driven by a dip against the yen, after BOJ board member Hajime Takata said in a speech the central bank needs to consider “nimble and flexible responses”, including ending policies such as negative interest rates and yield curve control.
Analysts and investors have been primarily expecting the BOJ to exit negative rates in April, with a risk of a move in March.
The euro was little changed at $1.0835, and sterling was flat at $1.26635. Benchmark US 10-year Treasury yields were stable too, at around 4.28 per cent.
In commodities, oil prices extended the previous session’s declines after a larger-than-expected build in US crude stockpiles stoked worries about slow demand, while signs that US interest rates could remain elevated added to pressure.
Brent crude futures fell 30 cents, or 0.4 per cent, to $83.37 a barrel although they are also up around 2 per cent this month whereas key metals like gold and copper have both fallen slightly.