World shares reached a three-week high on Thursday as the debate over interest rates continued to intensify. The dollar remained at a two-week low, while oil prices ticked higher after a sharp fall earlier this month. Despite ongoing troubles in the Middle East, the mood in global markets remained cautious but optimistic.
European stocks saw a boost after a 1.75% jump in Tokyo’s Nikkei 225 index. Additionally, news that Central Huijin Investment, a Chinese state fund, had increased its stakes in the country’s top four banks further bolstered confidence in the Asian market. However, China recently imposed restrictions on domestic brokerages and their overseas units, preventing them from taking on new mainland clients for offshore trading. This move aims to restrict capital outflows.
The recent buoyancy in global markets has been influenced by comments from Federal Reserve officials suggesting that US interest rates may have reached their peak. Fed Governor Christopher Waller stated that higher market interest rates may help slow inflation, allowing the central bank to monitor the situation and determine whether a rate increase is necessary. These statements align with similar remarks made by Fed Vice Chair Philip Jefferson and Dallas Fed President Lorie Logan earlier this week.
As traders eagerly await the US consumer inflation report, there is increased anticipation regarding the future trajectory of interest rates. Economists anticipate a slight rise in the headline consumer price index (CPI) for September compared to August, while core CPI is projected to remain steady. An upside surprise in the core rate could catch investors off guard and potentially influence the Fed’s stance on interest rates.
Long-dated US Treasury yields slightly eased due to safe-haven demand following the escalation of the Israeli-Palestinian conflict. Similarly, European government bond yields showed little change. Oil prices, after declining for two consecutive days, began edging higher thanks to reassurances from top OPEC producer Saudi Arabia that it would help stabilize the market amid concerns over potential supply disruptions due to the conflict. Gold also saw an increase, reaching its highest point in two weeks.
Christopher Granville, Managing Director of Global Political Research at TS Lombard, highlighted the potential impact of the Iran situation on global markets. He described a “plausible risk scenario” wherein Israel makes a strike on Iran for supporting Hamas, stating that if this were to occur, it could have significant implications for the global markets.
As markets await the US consumer inflation report and monitor geopolitical tensions, investors remain cautious yet hopeful for continued positive momentum in global markets.
Additional reporting by Stella Qiu in Sydney; Editing by Angus MacSwan.