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Euro drops as inflation slows, stocks extend gains

Oct 31 2017 12:55
Bloomberg: Adam Haigh

The euro declined and stocks advanced as data showed inflation unexpectedly slowed in the common-currency region, even as the economy appears to be strengthening.

The dollar edged higher as investors assess developments on US tax reform and await details of the next Fed chair.

Oil and gas stocks led gains in the Stoxx Europe 600 Index as crude hovered near a six-month high. Treasuries and core European bonds were mostly steady. Earlier a note of caution had crept into markets in Asian hours following a drop in China’s factory gauge, and equity benchmarks in that region were mixed.

Japanese stocks ended the day slightly lower after the Bank of Japan maintained its key policy rate and target for the yield on 10-year government bonds, while showing concerns remain on the inflation outlook.

The European data on Tuesday came amid mixed signals about the global economy. China’s official factory gauge fell this month, though the country’s economy continues to defy predictions of a sharper slowdown.

The euro-area’s unemployment rate inched lower in September as the economy expanded for an 18th consecutive quarter, but consumer inflation unexpectedly slowed in October, complicating the European Central Bank’s task as it considers tightening policy.

Meanwhile, investors trying to second-guess monetary policy in the world’s biggest economy remain fixated on the identity of the next Federal Reserve chief, with President Donald Trump expected to announce his choice this week.

The New York Times reported Jerome Powell will get the nod, in line with expectations from betting markets.

The Federal open market committee meets on Wednesday to review interest rates.

And American tax reform also remains a key theme, with lawmakers said to be considering a phase-in plan. The indictment of former Trump campaign aides in Robert Mueller’s investigation of Russian meddling in the US election, however, may pose a danger to the White House as it tries to push tax cuts through Congress.

Here are some key upcoming events this week:

The US central bank’s next rate decision is on Wednesday, with economists expecting policy makers to hold rates for now and to increase them at the December meeting. The US October payroll report comes out on Friday.

Trump starts an 11-day trip to Asia, his first as president, on Friday.

Trade and security issues - particularly North Korea - will probably be in focus. A probable Bank of England rate hike on Thursday will be the first in a decade. The slew of earnings releases will culminate with Apple results.

And these are the main moves in markets:

Stocks

The Stoxx Europe 600 Index gained 0.3% as of 10:11am London time, the highest in more than five months.  The UK’s FTSE 100 Index jumped 0.3% to the highest in a week. Spain’s IBEX Index gained 0.4% to the highest in almost 11 weeks.  

Futures on the S&P 500 Index climbed 0.2%.

Currencies

The Bloomberg Dollar Spot Index increased 0.1%.  The euro declined 0.2% to $1.1632.  The British pound was unchanged at $1.3208.

Bonds

The yield on 10-year Treasuries rose less than one basis point to 2.37%.  Germany’s 10-year yield decreased less than one basis point to 0.37%, the lowest in two weeks.  

Britain’s 10-year yield dipped one basis point to 1.335%, the lowest in more than a week.

Commodities

West Texas Intermediate crude fell less than 0.05% to $54.14 a barrel.  Gold decreased 0.1% to $1 275.55 an ounce.

Asia

Japan’s Topix index declined 0.3% at the close of trading in Tokyo, while the Nikkei 225 Stock Average was flat. SoftBank declined 4.6%. Talks with Sprint, whose shares plunged in US trading, have hit a serious snag over valuation, according to people familiar with the matter.

Australia’s S&P/ASX 200 Index fell 0.2%.

The Kospi in Seoul climbed 0.9%. Hong Kong’s Hang Seng Index was steady while the Shanghai Composite Index was up 0.1%. The Japanese yen decreased 0.1% to 113.26 per dollar.

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