[1/2] A chart of the German stock price index DAX is pictured on June 9, 2023 at the Stock Exchange in Frankfurt, Germany. REUTERS/Staff
LONDON, June 12 (Reuters) – European shares rose in early trade on Monday and world stocks were below 13-month highs ahead of key inflation data and U.S. Federal Reserve and European Central Bank meetings later in the week.
Market sentiment picked up in early European trade as investors awaited Tuesday’s US CPI data after a lack of direction during Asian trade.
At 0845 GMT, MSCI’s world equity index was up 0.2% on the day (.MIWD00000PUS), below a recent 13-month high, while MSCI’s Europe index was up 0.8% (.MSER).
Europe’s STOXX 600 rose 0.5% (.STOXX) and London’s FTSE 100 (.FTSE) rose 0.3%.
“Inflation in Europe is really moving in the right direction, and everyone believes it will be confirmed tomorrow in the U.S.,” said Sami Saar, chief economist at Lombard Odier, describing markets as “wait and see.” .”
“Certainly if we have a big downside surprise with inflation and inflation hotter than expected, that will challenge central banks and the central bank in its ‘pause’ strategy,” he said.
Investors expect the central bank to keep rates steady when the two-day meeting ends on Wednesday, but surprise rate hikes by the Reserve Bank of Australia and the Bank of Canada last week raised the possibility that central banks could extend their tightening cycles.
According to the CME FedWatch tool, money markets see a 73.6% chance of rates holding steady and a 26.4% chance of a 25 basis point rate hike.
The US dollar index was down 0.2% on the day at 103.310.
The euro rose 0.2% to $1.0775. The European Central Bank is expected to raise rates by 25 basis points on Thursday.
Eurozone government bond yields edged toward their latest highs. The benchmark 10-year German yield rose less than a basis point to 2.385%.
Germany’s two-year government bond yield, sensitive to interest rate expectations, was little changed at 2.974%.
The Bank of Japan is due to deliver its rate decision on Friday and is expected to maintain its ultra-loose policy. Japan’s headline inflation fell for the fifth straight month in May, data showed.
China’s weak post-Covid economic recovery continued to weigh on sentiment, and Chinese and Hong Kong stocks fell.
Investors are focused on the rate at which the People’s Bank of China (PBOC) will mature 200 billion yuan ($28.00 billion) worth of medium-term policy loans on Thursday.
A cut due to China’s post-pandemic recovery could widen the gap between US and Chinese prices and weigh on the yuan.
Oil prices fell as lower fuel demand from China and increased Russian crude supplies weighed on the market.
Brent crude was down 2.2% at $73.16 a barrel, while US West Texas Intermediate (WTI) crude was down 2.5% at $68.41.
Report by Elizabeth Howcroft; Editing by Sharon Singleton
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