European stocks tick higher on hopes of slower rate hikes

European stocks and US futures rose on Monday as investors bet that slowing inflation on both sides of the Atlantic will allow central banks to slow the pace at which they hike interest rates earlier this year.

The regional Stoxx Europe 600 rose 0.4 percent, contributing to last week’s 4.2 percent gain, while London’s FTSE 100 rose 0.2 percent.

Germany’s Dax gained 0.3 percent after production in the country’s manufacturing, energy and construction sectors rose 0.2 percent between October and November, according to figures from Germany’s statistics agency Destatis.

Contracts tracking Wall Street’s blue-chip S&P 500 gained 0.18 percent and contracts tracking the tech-heavy Nasdaq 100 rose 0.3 percent ahead of the New York open.

U.S. stocks rose sharply on Friday after U.S. government data showed average hourly wages for employees rose a seasonally adjusted 4.6 percent year-on-year in December, compared with 4.8 percent the previous month, putting upward pressure on the economy inflation reduced. The world’s largest economy added 223,000 jobs in the final month of 2022 — more than economists had expected but less than November’s 256,000 surge.

Federal Reserve officials are “encouraged” by signs of slowing wage growth, said Mark Haefele, chief investment officer at UBS Global Wealth Management, even though the job market is too “tight” for the central bank to break its rate-hiking cycle.

The Fed raised interest rates from near zero to between 4.25 and 4.5 percent last year.

Rates markets are pricing in a roughly 75 percent chance that the Fed will hike rates by a quarter of a point when it meets in late January, with US inflation data released on Thursday expected to show rates rising 6.6 percent for the year are year in December, after a rise of 7.1 percent in November. That would be the slowest pace since October 2021.

A measure of the dollar’s strength against a basket of six peers fell 0.35 percent on Monday. The currency has weakened more than 8 percent over the past three months as traders continue to bet the Federal Reserve will hike rates more slowly in the early months of 2023.

“The US economy remains resilient but is in a downtrend,” said Florian Ielpo, head of macro at Lombard Odier Asset Management. Still, the slowing of inflation in Europe and China’s easing of strict zero-Covid policies meant the direction for “most risky asset classes was the same – globally up,” he added.

Euro-zone inflation slipped back into single digits in December, with data released late last week showing the headline rate hit 9.2 percent after annual price growth topped 10 percent in the previous two months.

In Asia, Hong Kong’s Hang Seng index rose 1.9 percent and China’s CSI-300 index of stocks listed in Shanghai and Shenzhen rose 0.8 percent. European stocks tick higher on hopes of slower rate hikes

Adam Bradshaw

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