Dovish policy signals keep stocks climbing

(Corrects date of PCE deflator to Friday instead of Thursday in paragraph 10)

A look at the day ahead in European and global markets from Kevin Buckland

Dovish policy signals from opposite sides of the globe kept stocks climbing into Asian trading on Wednesday, boding well for the European open.

Bets for an early rate cut from the Federal Reserve continue to build, with Richmond Fed President Thomas Barkin’s remark that “we’re making good progress on inflation” taken as more fodder for the peak-rates and soft-landing narratives that have sent the Dow and Nasdaq to all-time highs, and the not far behind.

Traders now see a better than 3-in-4 chance for a quarter-point rate reduction by March, according to the CME’s FedWatch tool, although Chicago Fed boss Austan Goolsbee could again push back against market pricing when the Wall Street Journal airs a podcast interview later on Wednesday.

The dollar was languishing near a four-month low – except against the yen, which has been undercut by the Bank of Japan’s resolute dovishness in not only keeping uber-easy stimulus in place on Tuesday, but defying yen bulls by retaining its cautious policy guidance.

Japanese government bond yields slid to multi-month troughs in Tokyo, while benchmark U.S. Treasury yields continued to bump along near their lowest levels since July.

climbed 1.6% as it rode the tailwinds from the U.S. and Japanese central banks to just shy of a 33-year peak.

ECB President Christine Lagarde may have warned against complacency last week, but investors seem confident that rate cuts are coming, particularly with the latest data showing a marked easing of price pressures in the euro zone.

Indicators to watch in European time include inflation figures from Germany and Britain, while Germany and the euro area will also release readings on consumer confidence.

The U.S. follows with its own consumer confidence numbers later in the day, although the main data point will be the Fed’s favoured inflation gauge, the PCE deflator, on Friday.

Key developments that could influence markets on Wednesday:

-Germany GfK consumer sentiment (Jan), producer prices (Nov)

-UK CPI (Nov)

-Euro zone consumer confidence (Dec)

-US consumer confidence (Dec), existing home sales (Nov)

(This story has been corrected to fix the date of the PCE deflator to Friday, not Thursday, in paragraph 10)

(By Kevin Buckland; Editing by Edmund Klamann)

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