London (AFP) – European and Asian stock markets diverged Thursday, investors tracking the outlook for inflation and US interest rates as Donald Trump’s second presidency approaches. Sentiment was clouded by data showing that Chinese consumer inflation remained almost non-existent despite a raft of stimulus measures in the final three months of last year.
While deflation suggests the cost of goods is falling, it poses a threat to the broader economy as consumers tend to postpone purchases under such conditions, hoping for further reductions. In foreign exchange, the British pound weakened to lows not seen for more than a year on worries about sticky inflation that could further hit Britain’s struggling economy. London’s FTSE 100 index — whose biggest companies earn most of their money overseas — gained as the pound sank against its main rivals. Paris equities also rose and Frankfurt dipped.
US markets were closed Thursday as the country holds a national day of mourning for late former president Jimmy Carter. The drop in sterling comes as UK 10-year bond yields have surged, on Thursday hitting the highest level since the 2008 global financial crisis. That puts fiscal pressure on the Labour government, which could eventually force it to make spending cuts or hike taxes.
“This move is shadowing a rise in US bond yields…alongside indications of persistent inflation that are prompting investors to review expectations for two (US) rate cuts in the year ahead,” said Lindsay James, investment strategist at Quilter Investors. The likelihood of limited interest-rate cuts by the US Federal Reserve — which last year hinted at four cuts in 2025 — has “cast a shadow over market sentiment,” said Matt Britzman, senior analyst at Hargreaves Lansdown.
A report saying President-elect Trump had considered declaring a national economic emergency to provide legal cover to impose tariffs on all imported goods added to the uncertainty on trading floors. Worries about Trump’s plans to slash taxes, regulate immigration and ramp up tariffs have led to warnings that prices could reignite. That has sent the yield on the 10-year US Treasury note surging and fanned speculation it could top five percent for the first time since October 2023.
Friday’s US employment figures are now in focus for traders. The Dow and S&P 500 ended slightly higher on Wall Street Wednesday, but the Nasdaq dipped. In Asia, Hong Kong and Shanghai closed lower Thursday, reacting to the Chinese inflation data, which piles pressure on officials to ramp up stimulus to boost consumption. China’s leaders have unveiled a range of measures to kickstart the world’s number two economy, with a focus on getting people to spend, and support for the troubled property sector.
On the corporate front, Thursday UK retailers were hit by negative market sentiment. Shares in supermarket Tesco dipped 0.5 percent and Marks and Spencer dropped more than eight percent on London’s FTSE 100, despite both posting strong results.
– Key figures around 1630 GMT –
London – FTSE 100: UP 0.8 percent at 8,319.69 points (close)
Paris – CAC 40: UP 0.5 percent at 7,490.28 (close)
Frankfurt – DAX: DOWN less than 0.1 percent at 20,317.10 (close)
Tokyo – Nikkei 225: DOWN 0.9 percent at 39,605.09 (close)
Hong Kong – Hang Seng Index: DOWN 0.2 percent at 19,240.89 (close)
Shanghai – Composite: DOWN 0.6 percent at 3,211.39 (close)
New York – Dow: Closed
Euro/dollar: DOWN at $1.0296 from $1.0316 on Wednesday
Pound/dollar: DOWN at $1.2293 from $1.2361
Dollar/yen: DOWN at 157.96 yen from 158.38 yen
Euro/pound: UP at 83.75 pence from 83.44 pence
West Texas Intermediate: UP 1.2 percent at $74.18 per barrel
Brent North Sea Crude: UP 1.2 percent at $77.07 per barrel
© 2024 AFP
