Global shares rose on Friday, heading for a second week of gains ahead of a key read of U.S. inflation that investors are confident will pave the way for a Federal Reserve rate cut next week, a likelihood that weighed on the dollar and boosted gold.
European stock markets were propelled higher by gains in mining stocks after the price of copper hit record highs. The STOXX 600, which has gained 0.7% this week, was up 0.3% by early afternoon in Europe. U.S. stock futures were up 0.2% to 0.3%, pointing to a modest rally on Wall Street later.
Government bonds, which have been at the centre of a lot of market action this week, traded steadily ahead of monthly U.S. core inflation data.
BONDS IN FOCUS
Japanese government bonds have led a global debt selloff this week. Yields on 10-year JGBs have hit their highest point since mid-2007, while 30-year yields have hit record highs, after the Bank of Japan gave its strongest signal yet that rates were likely to rise this month.
“If they do proceed, that would take the policy rate up to 0.75%, the highest since 1995,” said Jim Reid, a strategist at Deutsche Bank.
“That’s led to a hawkish reaction among Japanese assets, with the yen strengthening 0.18% this morning against the U.S. dollar, whilst the Nikkei is down 1.29%,” he said.
The dollar was last up 0.1% on the day at 155.22 yen, off last week’s 10-month high of 157.9 yen.
The U.S. currency was under broad pressure on Friday, having steadied overnight after falling for nine straight sessions. The dollar index was down 0.1% to 99 – and down 0.5% for the week.
With the BOJ widely expected to deliver a rate rise just as the Fed resumes cutting, investors are buying the Japanese yen against the dollar as interest rates in the two countries edged towards one another.
Traders frequently borrow the yen to then sell it and buy higher-yielding assets in dollars, like tech stocks or cryptocurrencies – a practice known as a carry trade. A stronger yen puts billions of dollars invested in this trade at risk.
‘ONE AND DONE?’
“What’s going to be interesting about that (BOJ meeting): is, is ‘it one and done’? I think that’s going to be the big focus for both central banks, for the Fed and for the BOJ,” said City Index strategist Fiona Cincotta.
“So it feels like even though we’re in December and things should be winding down, there are still two major risk events.”
The weakness in the dollar has been driven by expectations that the Fed will cut interest rates by a quarter point next Wednesday and deliver at least two reductions in 2026.
While markets are 90% priced for a Fed rate cut, it could be the most contentious decision in years for the central bank because as many as five of the 12 voting members have publicly said they oppose reducing rates further.
Next up is the September personal consumption expenditures price index – the Fed’s preferred gauge of inflation – which is expected to show a 0.2% rise in the core measure, leaving the annual rate unchanged at 2.9%.
Data on Thursday showed jobless claims fell last week, assuaging concerns about a sharp deterioration in the labour market, but that might be due to the Thanksgiving holiday.
Treasury yields held steady on Friday after rising the previous day. Two-year Treasury yields were flat at 3.54%, having risen 5 basis points overnight, while the 10-year yield was virtually unchanged at 4.11%.
COPPER SURGES
In commodities, benchmark copper futures hit an all-time high of $11,705 a metric ton earlier, after Citi upgraded its price forecast based on supply concerns and expectations for a Fed rate cut.
Brent crude futures were set to end the week 0.2% lower at $63.2 a barrel, down around 0.1% on the day, while gold was up 0.3% to $4,221 an ounce. Silver was up 1.3% at $57.85 an ounce.
(Additional reporting by Stella Qiu in Sydney; Editing by Tom Hogue, Shri Navaratnam, Thomas Derpinghaus and Joe Bavier)
