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European stocks rose in early trading on Thursday, recovering after traders lowered their expectations for major central banks to start cutting interest rates soon.
A combination of higher-than-expected UK inflation data and US retail sales data, as well as hawkish comments from European Central Bank officials, pushed European and US stocks lower on Wednesday, as traders scaled back their expectations for rate cuts.
But European stocks indexes edged higher on Thursday, as markets steadied.
At 0907 GMT, the pan-European STOXX 600 was up less than 0.1 per cent on the day, at 468.05, compared to the previous session’s low of 464.99 (.STOXX), opens new tab, while Germany’s DAX was up 0.2 per cent (.GDAXI), opens new tab.
London’s FTSE 100 was down by less than 0.1 per cent, but still above Wednesday’s seven-week low (.FTSE), opens new tab.
US Treasury yields, which were pushed higher by Wednesday’s change in expectations, edged back down on Thursday. The US 2-year yield was at 4.3207 per cent , compared to Wednesday’s peak of 4.376 per cent.
Tim Graf, head of macro strategy for EMEA at State Street Global Markets, said that there is “probably still a little bit more to go”, in terms of markets reducing their expectations for imminent rate cuts.
“I think that means higher front-end rates and maybe a little bit of a stronger dollar but you’re kind of two-thirds of the way there, I would say,” he said.
During Asian trading, fears about China’s economy led to China’s blue-chip stocks index hitting its lowest in five years (.CSI300), opens new tab, and the Shanghai Composite Index fell to its lowest since April 2020 (.SSEC), opens new tab. Both recovered over the course of the session.
China’s economic recovery from COVID has been shakier than many investors expected, with a deepening property crisis, mounting deflationary risks and tepid demand casting a pall over the outlook for this year.
The US dollar index was steady at 103.33, having climbed 1.9 per cent so far in 2024 as investors revised previous expectations that the US Federal Reserve could cut rates as early as March .
The euro was little changed on the day, at $1.0886 .
Euro zone government bond yields were steady, with the benchmark 10-year German yield up one basis point at 2.281 per cent .
The European Central Bank is due to publish the minutes of its December meeting, when it decided to bring forward the timing of the pandemic Emergency Purchase Programme’s (PEPP) roll-off and signalled that rate cuts were not on the table.
Oil prices were up, helped by OPEC forecasting relatively strong growth in global oil demand over the next two years. But an unexpected build-up in US crude stockpiles and China’s struggling economic recovery hurt the outlook for oil demand, analysts said. The International Energy Agency (IEA) made an upward revision to its 2024 oil demand growth forecast.
Brent crude futures were up 0.4 per cent to $78.20 a barrel , while US West Texas Intermediate crude futures rose 0.7 per cent to $73.05 .
In the latest rise in geopolitical tensions, Pakistan conducted strikes inside Iran on Thursday, targeting separatist militants, the Pakistani foreign ministry said, two days after Tehran said it attacked Israel-linked militant bases inside Pakistani territory.
State Street Global Markets’ Tim Graf said the conflict had not affected broader financial markets.