Wall Street headed for further gains on Friday after scaling new heights this week as looming U.S. inflation data will help investors calibrate how much further they may need to dial back on their rate cut bets.
The greenback was firmer and headed for a fourth weekly rise on Friday, pushing the yen to a 10-week low, as traders dialled back bets on how quickly the Bank of Japan might raise interest rates and how soon the Federal Reserve will cut them, helping to send gold lower for the week.
Oil ticked lower, though remained on track for weekly gains of about 5% with the market watching events in the Middle East after Israel rejected a ceasefire offer from Hamas.
The MSCI All Country stock index was slightly firmer, up 2.5% for the year so far.
The mood in stock markets was buoyed by Wall Street, where the S&P 500 index rose above 5,000 points for the first time ever on Thursday, capping a 21% surge since October.
Investors will now focus on the U.S. Bureau of LaborStatistics’ revised inflation figures for 2023 at 1330 GMT, calculated using new seasonal adjustment factors – statistical weights that aim to reflect how prices behaved over the year more accurately. ”This is something the Fed are watching, and Governor Wallerexplicitly mentioned these revisions in his speech last month,so it’ll be an important one for the timing of any rate cuts,”said Deutsche Bank strategist Jim Reid.
U.S. inflation data for January is also coming next week. Dow, S&P 500 and Nasdaq stock index futures were all firmer. In Europe, the STOXX index of 600 companies was up 0.2%
Stocks were underpinned by a rethink of last year’s narrative that the chances of a soft landing for the economy in 2024 were limited, said Eren Osman, managing director of wealth management at Arbuthnot Latham.
"The difficulty though for investors at this stage is to take outright long positions, and I think that’s the conundrum you face," Osman said.
He has increased exposure to European stocks, where valuations look more appealing than on Wall Street after its heady run.
"But I wouldn’t be short of the Magnificent Seven right now," he added, a reference to the big U.S. tech stocks that account for about 30% of the S&P’s value.
On the data front, inflation in Germany, Europe’s biggest economy, eased in January to 3.1%, adding fuel to bets on when the European Central Bank will begin easing rates.
However, euro zone bond yields hit multi-week highs after several ECB rate setters warned against easing monetary policy too early.
"Indeed, it seems pretty clear now that the ECB will be waiting for European wage data statistics at the end of April before likely cutting rates in June," ING bank said in a note to clients.
JAPAN SHARES AT 34-YEAR HIGH
Japanese shares hit 34-year highs on Friday while adjustments to interest rate expectations sent the yen as low as 149.575 per dollar, its weakest since Nov. 27.
In China, mainland markets were closed and Hong Kong traded thinly and shut early, with the Hang Seng down 0.8% amid nerves authorities may not deliver on promises for support.
"I am betting that (decisive action) is happening," said Chi Lo, senior markets strategist for Asia Pacific at BNP Paribas Asset Management.
Japan’s Nikkei, which has been receiving a gush of foreign inflows as investors flee China, rose 0.3%, aided by the yen’s retreat. [.T]
Nissan shares collapsed almost 12% for their largest fall in decades after the automaker cut its outlook on slumping China sales.
In commodities, Brent crude oil futures eased 0.2% to $81.42.
Two-year U.S. Treasury yields were slightly firmer at 4.4862%. Ten-year yields were steady at 4.1754%.
Bitcoin gained 4.4% to $47,303.
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