World shares rose, and the dollar and bond market borrowing costs held steady on Thursday ahead of U.S. inflation data and European Central Bank meeting minutes that will add to the hotly-contested debate on where interest rates are heading.
Inflation readings due in the United States on Friday are expected to come in below expectations, which would help lower investors’ expectations of future rate hikes from the Federal Reserve. Investors’ bets are now at least 90% that the Fed will hold off raising rates at its next policy meeting in September, according to CME’s FedWatch tool.
That would likely send a calming message to global markets, particularly emerging ones like China and South Korea, where higher interest rates could impact corporate profits. Investors also saw some positive signs in the latest data from China, which showed that factory activity rebounded in August after a slump last month.
However, tensions in the Middle East kept some investors cautious. In the most significant development since air strikes on Gaza began, a senior official from Hamas told Reuters that Israeli military action had killed dozens of civilians, including children and women. He added that the group had captured several Israelis and that dozens of Palestinian fighters were injured in the assault.
Meanwhile, Russia’s Vladimir Putin said the escalation of tensions between Israel and the Palestinians was the result of years of U.S. policy that had failed to consider both sides’ needs. He also said he was in touch with both sides and was working to defuse the situation but did not offer any specific proposals.
In the United States, stocks regained momentum after Wednesday’s hotter-than-expected producer price data. The Dow Jones Industrial Average (DJI) rose 0.2% while the S&P 500 index GSPC> gained 0.4%. The tech-heavy Nasdaq Composite IXIC> added 0.7%, reversing early losses.
Treasury yields, which tend to follow the Fed’s moves, retreated from multi-year highs as investors dialed back expectations of additional rate hikes. The two-year bond yield dropped one basis point to 4.2%.
The ECB’s meeting minutes showed that its current policy stance was to ensure that “interest rates will remain at present levels for an extended period, and that they will do so as long as necessary to achieve a sustained return of inflation to its medium-term target of just below 2%.” That echoed comments from the Governing Council in its latest meeting, which suggested interest rates were likely at their peak. That helped to drive a recovery in the euro. The euro rose 0.2% against the dollar to 1.1256 and was up 0.5% against the yen to 140.90. Against the pound, it was up 0.47% at 1.3344.
