US and European stocks rose on Wednesday, as investors looked forward to the release of US inflation data for December later this week.
Wall Street’s blue-chip S&P 500 rose 0.6 percent in morning trade, while the tech-heavy Nasdaq rose 0.7 percent. The regional Stoxx Europe 600 added 0.6 percent, Germany’s Dax rallied 1.1 percent and in mid-afternoon trading London’s FTSE 100 rose 0.9 percent to be within striking distance of a record high in 2018.
Equity markets on either side of the Atlantic have advanced so far this year on signs that inflation has peaked, and despite warnings from the US Federal Reserve and the European Central Bank that interest rates will need to be higher.
Figures out Friday are expected to show US consumer price growth continued to slow in December. Inflation also appears to be highest in Europe, with price growth slowing in France, Germany and Spain.
Central bank officials stressed that it was not yet time to pause the monetary tightening campaign, however. Projections published in December showed most Fed officials expected the top fed funds rate to be between 5 percent and 5.25 percent, up from current levels of between 4.25 percent and 4.5 percent. ECB President Christine Lagarde said in December that markets should expect rates to rise “at a pace of 50-basis-points for some time”.
The size of future interest rate rises – as well as the depth of recession expected in Europe and the US later this year – are currently dominating the debate.
“Friendly December [consumer prices index] print set up for a 25 basis point increase and could very well prove to be the end for this cycle,” said Steven Blitz, chief US economist at TS Lombard. “Over the near term, mild recession or no recession, inflation will be closer to 3 percent of 2 percent, due to structural imbalances in the labor market.”
Employment growth in the world’s largest economy has slowed. It’s been a long time. Fed officials have made it clear that the continued cooling of inflation is largely dependent on unemployment rising later this year, even as the economy faces labor shortages in service sectors such as hospitality and travel.
In Asia, Hong Kong’s Hang Seng index rose 0.5 percent, taking its rise since early November to 45 percent. China’s CSI 300 index of Shanghai- and Shenzhen-listed shares fell 0.2 percent.