European stocks inched higher and US futures slip there, as investors consider cooling inflation on both sides of the Atlantic with warnings from central bank officials that interest rates will probably remain higher for longer than the market expected.
The regional Stoxx Europe 600 added 0.3 percent, taking its gains for 2023 to 5.4 percent, while London’s FTSE 100 rose 0.2 percent, close to an all-time high. US markets were closed for the Martin Luther King Jr holiday, after Wall Street’s blue-chip S&P 500 posted its biggest weekly gain in two months on Friday.
Equity markets have been buoyed by signs of slowing price growth in the US and Europe. US inflation fell to its lowest level in more than a year in December, while consumer prices in the euro zone rose at an annual rate of 9.2 percent, down from 10.1 percent in November.
Even so, officials at the US Federal Reserve and the European Central Bank argue that core inflation, which dampens volatile food and energy prices, remains too high to justify raising interest rates anytime soon.
Some investors are not convinced. “Depending on January and February employment, a 25 basis point increase at the end of this month may be the last increase,” said Steven Blitz, chief US economist at TS Lombard. “See rate cuts starting mid-year.”
The rate market is now pricing in a 90 percent chance that the Fed will lift rates by a quarter of a percentage point when they meet in early February, down from a 0.5 percent increase in December and four 0.75 percent moves in the previous one. meetings.
A measure of the dollar’s strength against a basket of six currencies rose 0.1 percent on Friday, although it has slipped about 8.6 percent in the past three months as the pace of interest increases has slowed.
The euro traded flat against the dollar at $1,082, having strengthened 10.1 percent over the past three months. If it reaches 128.36 against the dollar, it is close to its highest level in more than seven months, as investors look forward to a potentially important Bank of Japan meeting this week – the last under governor Haruhiko Kuroda.
In Asia, Hong Kong’s Hang Seng index traded flat, although it has risen 8 percent so far this year. China’s CSI 300 index of Shanghai- and Shenzhen-listed shares rose 1.5 percent, taking January’s gain to 6.4 percent. China’s National Bureau of Statistics will release what will be its third disappointing estimate for monthly expansion.
In the commodity market, European natural gas prices continued to fall, with Dutch TTF gas futures for the coming month falling as much as 10.25 percent to €58.25 per megawatt hour – the lowest level since September 2021, according to data from Refinitiv.