Asian stock markets were broadly higher as investors regained some of their love for tech stocks, and Nvidia (NVDA) in particular while looking ahead to a near-certain rate cut by the ECB and possible hints on what more is to come.
All of which helped to offset a damper on the markets from the rapidly diminishing chances for an outsized half-point rate cut by the Fed next week.
The much anticipated U.S. inflation report overnight showed that the core CPI rose 0.28% in August, slightly above a forecast rise of 0.2%, and that was enough for skittish markets to finally decide that the Fed will settle for a 25 bps rate cut on Wednesday.
That drove short-term yields higher and gave the dollar a much-needed boost against the yen, which pulled back from its 2024 high of 140.71 per dollar.
The weaker yen sent the Nikkei almost 3% higher, overshadowing hawkish comments by a senior Bank of Japan official that rates need to reach 1% over time.
Europe is set for solid gains heading into its big risk event of the day: the European Central Bank policy decision. EUROSTOXX 50 futures jumped 1.2% and FTSE futures gained 1%.
A quarter-point cut is fully baked in but the question remains whether the central bank will cut again in October and December. Inflation-wary hawks are still in the majority, with markets only pricing a move next month at about 40%.
The most likely scenario is that ECB President Christine Lagarde in her post-meeting briefing will stick to the recent narrative that decisions are taken meeting by meeting, based on incoming data.
Next up, attention will shift back to the U.S. where weekly jobless claims and producer price data are due.
Jobless claims have gained extra prominence given the Fed’s laser focus on the health of the labour market. A bad number – higher than the forecast 230,000 – could revive the prospects for a 50 bps cut.
Economists expect the PPI rose 0.1% last month. Some elements of the data will help analysts refine forecasts for the Personal Consumption Expenditures Price Index, the Fed’s preferred gauge of inflation, which is due on Sept. 27.
