European stock markets are projected to open considerably lower on Thursday as investors parse through recent inflation data from China and anticipate a policy meeting from the European Central Bank (ECB).
Inflation in China has remained stagnant compared to the previous year in March, with producer prices continuing to deflate, sparking calls for additional policy stimulus measures. China's Consumer Price Index surged by a mere 0.1% yearly in March, while factory prices experienced a decline for the 18th consecutive month.
Meanwhile, the ECB's policy meeting scheduled for later today isn't expected to alter the rates. Instead, investors are on standby to see if the central bank will prepare for an interest-rate cut ahead of the Federal Reserve.
Asian markets displayed a downward trend, although Chinese stocks enjoyed modest growth in anticipation of further economic stimuli. The US dollar floated at a five-month high, while Treasury yields leveled off after rising steeply overnight due to suspicions that the Federal Reserve will take its time before slashing interest rates.
The forthcoming release of a measure of US producer price inflation could affect speculation on a 2024 rate cut by the Fed. Additionally, the escalating tensions in the Middle East, potentially involving Iran, have caused oil and gold prices to trend upward. According to a Bloomberg report, Iran—the third-largest oil producer in OPEC—may strike against Israel utilizing precision missiles and drones.
Overnight, US equities suffered significant losses and bond yields soared after indications of stubborn inflation and the Fed's March meeting minutes exposed inflation forecast risks, stalling expectations for a rate cut in June. The Dow Jones faced a 1.1% drop, while the S&P 500 and the Nasdaq Composite experienced a decrease in returns of 1% and 0.8% respectively.
In regards to the consumer inflation in the US, growth was reported at 0.4% on a monthly basis in March, while the yearly inflation was recorded at 3.5%. Both of these figures surpassed the expected 0.3% and 3.4% respectively. Core inflation also remains high, climbing 3.8% annually—slightly higher than the predicted 3.7%.
Lastly, fears over stagnating inflation progress resulted in a spike in the benchmark ten-year note yield to over 4.50% for the first time since mid-November. European stocks on Wednesday closed with mixed results amidst growing concerns of escalating US inflation and the upcoming ECB rate decision.
