Stocks settled into a holding pattern on Thursday as investors awaited critical US inflation data that could provide insights into the Federal Reserve’s future policy decisions. The Stoxx 600 index and S&P 500 futures remained flat, following a strong previous session where the main US equity gauge reached its 44th record of the year, driven primarily by gains in major tech stocks. Meanwhile, Treasury yields remained steady, and oil prices experienced an uptick as traders monitored potential Israeli responses to Iran’s recent missile attack. The Bloomberg Dollar Spot Index and the euro showed little change.
Inflation Expectations and Federal Reserve Policy
US consumer price data is anticipated to reflect a further moderation in inflation, aligning with the Federal Reserve’s expected easing in the months ahead. However, following unexpectedly robust job growth for September reported last Friday, the gradual decline in price pressures implies that policymakers may favor a smaller interest rate cut during their upcoming meeting next month—or potentially decide against cutting rates altogether.
Minutes from the last Federal Open Market Committee (FOMC) meeting indicated that a majority of officials supported a 50-basis-point cut, although there was a notable preference among some members for a more gradual approach to rate reductions.
Chinese Stocks Rally on Stimulus Measures
In China, stocks surged after details of new stimulus measures were released. The country’s central bank announced the establishment of a swap facility aimed at providing liquidity to institutional investors for stock purchases. Investors are keenly awaiting a press conference by the finance ministry scheduled for Saturday, which is expected to offer further insights into potential fiscal stimulus.
Richard Tang, China Strategist and Head of Research at Julius Baer Group Ltd., remarked, “After a few days of heavy profit-taking, we expect the offshore market to move on to the second phase of the rally, which features slower gains, higher volatility, but with the basics—earnings and valuations—back in focus.”
French Budget Presentation and Economic Measures
In France, Prime Minister Michel Barnier’s government is set to unveil budget details to his cabinet on Thursday evening in Paris. The proposed budget is expected to serve as an initial shock therapy aimed at addressing rising deficits and reassuring skeptical bond investors, all while navigating a challenging political landscape within a fractured parliament.
Oil Market Reaction Amid Geopolitical Tensions
Crude oil prices edged higher following a two-day decline, with Brent crude trading near $77 a barrel. The market remains cautious amid rising tensions regarding Israel’s potential retaliation against Iran, prompting concerns about the possibility of an all-out war. Iran has issued warnings that it stands ready to launch thousands of missiles if necessary.
President Joe Biden has discouraged any attacks on Iranian oil infrastructure and engaged in his first conversation with Israeli Prime Minister Benjamin Netanyahu on Wednesday after more than a month of no dialogue.
Conclusion
As stocks hold steady and await pivotal economic data, investors remain vigilant regarding inflation trends and geopolitical developments. With the Fed’s next moves under scrutiny and ongoing tensions in the Middle East, market participants are poised for fluctuations in the coming days, balancing the impacts of economic indicators with international events.
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