Stocks and gold rise on renewed rate cut hopes
Stock markets rose on both sides of the Atlantic and gold hit new records Thursday as the both the European and US central banks indicated interest rate cuts could be on the way later this year.
The European Central Bank, as expected, kept its rates unchanged for a fourth straight meeting on Thursday, but the Frankfurt-based institution lowered its inflation forecast, expecting consumer prices to increase more slowly than previously thought this year and return to its two-percent target in 2025.
"The path for future rate cuts could be in place, after a symbolic cut to both the headline and core inflation forecasts for this year," said Kathleen Brooks, research director at XTB.
Salomon Fiedler, an economist at Berenberg, said that "once it feels confident in its success in the fight against inflation, we expect the ECB will cut rates by 25 basis points in June, followed by two more such moves in the second half of 2024 and a final one in the first quarter of 2025."
Markets continued also to be boosted Thursday by US Federal Reserve chief Jerome Powell's comments before Congress on Wednesday.
Powell flagged progress on bringing inflation towards the Fed's two percent goal and said borrowing costs could be lowered as a result.
"If the economy evolves broadly as expected, it will likely be appropriate to begin dialling back policy restraint at some point this year," Powell told the House Financial Services Committee.
"But the economic outlook is uncertain, and ongoing progress toward our two percent inflation objective is not assured," said Powell, who appears before the Senate on Thursday.
With Powell warning that the battle against inflation was far from over, investors are expecting the first cut in June after earlier hopes for a March move were scrubbed by a strong inflation report last month and continued strength in the labour market.
"Powell and Company probably want to see the strength in the labor market moderate over the next couple months before starting to reduce rates," said Matthew Weller, head of research at Forex.com.
Friday sees the latest US non-farm payrolls, which might confirm recent data showing that the labour market remains healthy but appears to be softening.
"Another blowout jobs number tomorrow like the approximately 350,000 in January might raise concerns about the Fed's ability to tame a hot labor market, which can fuel inflation," said Joe Mazzola, an analyst at Charles Schwab. "A couple of relatively light data points so far this week doesn't change the underlying picture all that much."
The Paris stock market's CAC 40 index broke through 8,000 for the first time ever, closing at 8,012.51. Frankfurt's DAX index also closed at a record high.
In New York, chipmaker Nvidia continued to boost the market, up another 3.5 percent in midday trading in New York. Meanwhile, fellow tech company Apple has been on a month-long slide, falling about 10 percent over the period.
Gold, a haven investment during times of geopolitical uncertainty, surged to a new all-time peak at $2,164.78 per ounce to extend its record-breaking run. It was last at $2,156.96 an ounce.
Talk of lower interest rates has undermined the dollar this week, and a weaker US currency makes dollar-denominated commodities cheaper for buyers using stronger units, which tends to boost demand.
- Key figures around 1645 GMT -
New York - Dow: UP 0.6 percent at 38,876.78 points
New York - S&P 500: UP 0.6 percent at 5,136.68
New York - Nasdaq Composite: UP 0.9 percent at 16,177.58
London - FTSE 100: UP 0.2 percent at 7,695.30 (close)
Paris - CAC 40: UP 0.7 percent at 8,012.50 (close)
Frankfurt - DAX: UP 0.5 at 17,802.76 (close)
EURO STOXX 50: UP 0.9 percent at 4,959.09 (close)
Tokyo - Nikkei 225: DOWN 1.2 percent at 39,598.71 (close)
Hong Kong - Hang Seng Index: DOWN 1.3 percent at 16,229.78 (close)
Shanghai - Composite: DOWN 0.4 percent at 3,027.40 (close)
Euro/dollar: UP at $1.090 from $1.0899 on Wednesday
Dollar/yen: DOWN at 147.89 yen from 149.44 yen
Pound/dollar: UP at $1.2758 from $1.2732
Euro/pound: DOWN at 85.44 pence from 85.58 pence
Brent North Sea Crude: DOWN 0.1 percent at $82.90 per barrel
West Texas Intermediate: DOWN 0.4 percent at $78.81 per barrel
burs-gv/cw
Ch.Jacobs--RTC
