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European stocks rise on lower inflation data.

ReutersJuly 31, 2023

European Shares Jump as Inflation Falls

By Nell⁢ Mackenzie and Wayne Cole

LONDON/SYDNEY (Reuters) – European shares jumped on Monday ‍after a key economic report for the⁢ region ‍showed a ⁣fall in inflation ⁣– an optimistic kick-off for a week littered‍ with major economic data, central bank⁢ meetings, and earnings updates.

Euro zone inflation fell further in July and most measures of underlying price growth also eased,‌ in a largely comforting sign for the European Central Bank (ECB) as it considers ending a brutal string ⁢of interest rate hikes.

Germany’s blue-chip stocks index‍ hit a‌ record high at one point ‍and was last up 0.3%. ‌The pan-European STOXX 600 index rose by 0.1%, heading for a ‌second consecutive monthly gain.

This lightened the mood in markets ‌after China’s manufacturing activity fell for a fourth straight month ‌in July, as demand‌ remained weak at home and abroad, official surveys showed on Monday.

“Markets are treating information‌ with a lot more sensitivity and people are looking into⁢ new information with a ‌detailed eye,” said Florian Ielpo, head of ⁣macro at Lombard ‍Odier ‍Investment Managers.

Figures due ⁢this week‍ include‍ the U.S. ISM surveys on‍ manufacturing and services, as well as the July payrolls‌ report.

The Bank of England is widely expected to ⁤raise⁤ rates by⁢ at least a quarter point, but markets are more divided on whether the Reserve Bank of Australia will hike or stay on hold.

Almost 30% of the S&P 500 report results⁤ this week and so far, earnings have been good enough to see ⁤the index extend its rally to 10% ⁢since the‍ start of June.

Futures on both the S&P ‍500 and the Nasdaq 100 were flat.

Apple Inc and Amazon.com both report on Thursday, while ⁢other well-known names with results due include ‌Western Digital Corp, Caterpillar Inc, Starbucks Corp, and Advanced Micro Devices.

PARSING THE BOJ

Japan’s Nikkei ⁤closed up 1.26% to re-take‌ the 33,000 level and nudge closer to its recent three-decade peak.

Investors are‍ still pondering the implications of Friday’s decision by the Bank of Japan (BOJ) to lift ⁢the‍ lid on bond yields, in a step away from its ultra-easy policies.

Analysts at⁤ BofA estimate the BOJ’s bond buying added $1.3 trillion to global ⁤liquidity in the past 18 months and provided a low floor for global rates, so any sustained rise in Japanese government bond yields could ripple though other bond markets.

Japanese 10-year yields surged to a nine-year-high up to⁢ 0.6% on Monday, and toward the new cap⁤ of⁤ 1.0%. That also put upward pressure on Treasury yields, where the 10-year rose 2 basis ‌points to 3.98%.

While the yen had initially rallied ⁤on the BOJ move, ⁢it soon reversed course‌ as investors still seemed happy ‌to run carry trades, ⁤or yen-funded positions in higher-yielding currencies.

“Friday’s action might best be viewed as an attempt to head off a fresh⁤ wave of yen-weakening carry trade activity, by at least ceasing to resist ⁣pressure for 10-year yields to⁣ rise above 0.5%,” said Ray Attrill, head⁤ of FX strategy at National Australia Bank.

Traders cut their bets on a continuing rally in the pound by ⁣the most since mid-June ahead of the Bank of ‍England rate decision on Thursday.

Sterling has surged 24% ‌from⁢ a record low of $1.033 against the dollar in September after a disastrous budget, hitting a 15-month high of $1.314 in mid-July.

The euro gained 0.1% to 1.1028 dollars as did the dollar index rising 0.1% to 101.700.

In commodities, gold dropped 0.2% to $1,955 an ounce, but still 1.8% higher ⁣for the month so far. [GOL/]

Oil prices took a breather with‌ brent flat at $85.00 a‌ barrel, while U.S. crude rose 18 cents to $80.78.

(Reporting by Nell Mackenzie and Wayne Cole; ⁢Editing by Jamie Freed and Himani Sarkar)