HONG KONG (AFP) – Asian and European markets rallied yesterday, building on the momentum of gains in the United States (US) and elsewhere at the end of last week, as investors price in the expectation of further interest rate hikes aimed at taming inflation.
The euro surged in early trading, a day after German central bank chief Joachim Nagel signalled that the European Central Bank (ECB) would probably continue raising its key rate.
The European single currency rocketed more than 1.4 per cent against the dollar and 1.6 per cent versus the yen.
The ECB raised the key rate by a historic 75 basis points last week, and markets expect a similar-sized hike at an October meeting.
Nagel predicted inflation in Europe might peak at more than 10 per cent in December.
London, Paris and Frankfurt all opened higher yesterday, with bourses in Japan, Australia, Singapore, Taiwan, Jakarta, Malaysia and Thailand also rising.
Markets in Hong Kong, China and South Korea were closed for a public holiday.
This week, investors worldwide will be closely watching US inflation data for August, due to be released today, with the consumer price index (CPI) expected to ease slightly to eight per cent – still well above the Fed’s two-per cent target.
Traders expect the Fed to impose another large rate hike next week, after two 75-basis-point increases already. “A downside surprise in US CPI is likely more of a concern and that could see the dollar weakening further,” a strategist at Saxo Capital Markets Charu Chanana told Bloomberg Television.
Clifford Bennett, chief economist at ACY Securities, said he expected stocks to “continue to drift higher” ahead of today’s US CPI data.
“(US CPI) may well see further improvement as petrol prices have continued to pull back,” he said.