Alan John and Scott Murdoch
LONDON/SYDNEY (Reuters) – Global stocks traded higher and bonds and currencies steadied on Wednesday, largely unfazed by ratings agency Fitch downgrading its China outlook as traders awaited important U.S. inflation data that will be published later in the day.
The broad index of Europe rose 0.6%, recovering from the previous day’s decline and again approaching a record high, while MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.65% and the US was unchanged. [.N] ()
Robust economic data, especially in the United States, coupled with expectations that central banks will cut rates this year have helped lift stocks in most markets around the world.
But concerns that persistent inflation in the United States could mean the Federal Reserve won’t cut rates before the end of the year remains a risk.
So the US CPI data for March, due out at 1230 GMT on Wednesday, will be important. Market prices reflect a roughly 50% chance that the Fed’s first rate cut will come in June, lower than a few weeks ago.
“Investors have been very focused on the trajectory of interest rates, particularly in the US, where it is increasingly clear that the economy is in such a robust state that people are wondering why we need interest rate cuts at all,” said Thomas Gehlen. senior market strategist
“But at the end of the day, (Fed Chairman) Jerome Powell says we’re doing well with the economy and we shouldn’t get too caught up in the timing. A year from now, we will see a sustained, albeit moderate, rate-cutting trajectory.”
U.S. Treasuries were fairly quiet ahead of the data, with the benchmark 10-year yield unchanged that day at 4.362%, not far from Monday’s four-month high of 4.464%. [US/]
Eurozone bonds also remained steady as the European Central Bank meeting approaches on Thursday. The yield on German 10-year bonds remained at 2.37%.
European rates have largely traded in line with their US peers in recent months, but strong US inflation followed by fresh hints that the ECB may cut rates in June could lead to them being rejected. [GVD/EUR]
In Europe, attention was also paid to defense shares, which fell 0.3%, easing somewhat from a 3.8% drop the previous day, as traders grew nervous about the sector’s record growth and analysts pointed to potentially stretched valuations.
CHINA’S PROSPECTS
Also drawing attention on Wednesday was Fitch’s reaffirmation of China’s A+ sovereign rating, although the outlook was downgraded to negative and economic growth was forecast to slow this year.
Chinese onshore blue chips fell 0.8%, while Hong Kong shares rose 1.85%. [.SS]
“These downgrades mainly reflect the current cyclical situation in China, they are not forward-looking. This means that when China’s economy improves, they will change their rating outlook to positive,” said Chi Luo, BNP Paribas (OTC:) Asset. Senior management strategist. He added that Fitch’s decision follows a similar decision by Moody’s (NYSE:) in December.
In foreign exchange markets, the Japanese yen was at 152 per dollar. Traders are wary of Japanese authorities stepping in to support the currency if it rises too far or too quickly above that level.
Even if Tokyo does intervene, the yen’s strength may be short-lived due to the wide gap between floor interest rates in Japan and elsewhere.
“The BOJ will be taking very small steps at a time when many global central banks are considering rate cuts (meaning) any upward movement in the yen will be limited,” said Marcella Chow, global market strategist at JPMorgan Asset Management.
Elsewhere in currency markets, the index, which tracks a currency against six major peers, remained steady at 104.09, rising above 105 in early April before retreating. [FRX/]
In commodities, aluminum prices hit their highest level in 14 months and other industrial metals hit new peaks. {MET/L]
rose 0.4% to $85.68 per barrel. rose by 0.4% to $89.8 per barrel. [O/R]
Gold fell slightly and traded at $2,347.9 per ounce, still hovering near all-time highs. [GOL/]