As Europe and Wall Street hit record highs, global stock markets remained close to record highs on Wednesday, and investors are betting that higher-than-expected US inflation will not stop the Federal Reserve and other central banks from cutting interest rates.
The Asian stock market hit a seven-month high as many technology stocks rose. However, the European stock market opened better, hitting a record high for the fifth time in six trading days. Moreover, the Stoxx 50 Index also surpassed the 5,000 mark for the first time in 24 years.
The latest rise in European stock prices was driven by retailers in the region. Zara's owner Inditex performed strongly, and Zalando shares surged 14%, offsetting the news that Adidas lost money for the first time in 30 years due to the Kanye West problem.
In contrast, the volatility of the foreign exchange market is still very low, which is very disappointing for forex traders, even though the European Central Bank (ECB) is about to release the much-anticipated monetary policy framework.
The dollar, euro, yen, and pound were little changed, although the yen seemed ready to rebound. The yen is expected to rise if Japan finally raises interest rates next week. However, since November of last year, the dollar has not risen or fallen by more than 1%.
Kit Juckes, strategist at Société Générale, said, “We are in a very, very short-term, interest-rate driven market. The overall situation is that the Federal Reserve, the European Central Bank, and the Bank of England are expected to cut interest rates around June.”
“But one big problem is EURUSD. If the Federal Reserve and ECB both cut interest rates three times this year, and if all interest rates change at the same time, then there's nothing you can do about foreign exchange.”
After an unexpected rise in US inflation on Tuesday, US and European benchmark bond market yields rose to one-week highs. These two standards tend to drive global borrowing costs.