Stocks Drift Ahead of ECB Policy Meeting

Global stocks were little changed Thursday, as investors waited for clues on when the European Central Bank could begin to scale back its massive bond purchase program.

The Stoxx Europe 600 rose 0.1% in early trade. Futures pointed to a small opening loss for the Dow Jones Industrial Average after Wall Street closed slightly higher on Wednesday. Most Asian markets were little changed.

On Wednesday, U.S. stocks rose slightly after President Donald Trump backed a deal with congressional Democrats to attach hurricane relief money to a three-month extension of both government funding and the debt limit.

The surprise deal suggests Mr. Trump could show more flexibility on other spending initiatives with the Democrats. It also prompted some modest moves in U.S. government bonds and the U.S. dollar, though the stock market reaction has been muted so far.

In Europe, investors are turning their attention to the ECB’s policy meeting later Thursday in the hope of getting more details on when the central bank could scale back its massive bond purchases. Central bank stimulus programs have helped boost stocks and bonds in recent years.

The ECB has said it would make a decision on its bond purchase program in the fall. Most analysts aren’t expecting an announcement Thursday, but are hoping for further clues on the central bank’s thinking, including the release of new economic forecasts. Some highlight that the recent gains in the euro, along with stubbornly low inflation, could complicate any plans to scale back its extraordinary stimulus measures.

“Inflation is just moving sideways in Europe,” said Jean Boivin, head of economic and markets research of the BlackRock Investment Institute.

“It’s going to become very tricky for the ECB to tell a convincing story of why there needs to be a significant change in policy at this stage,” he added.

One particular headache for the ECB is the strong gains in the euro over the past several months, which can damp inflation by pushing down the price of imports. The euro was slightly higher against the dollar Thursday at $1.1938. Elsewhere in currency markets, the WSJ dollar index, which measures the dollar against a basket of 16 other currencies, slipped 0.1%.

In bond markets, the yield on the 10-year German government bond was slightly higher at 0.363%, according to Tradeweb, tracking Wednesday’s rise in the 10-year Treasury yield following the debt ceiling deal in Washington. The 10-year Treasury yield was slightly lower Thursday at 2.093%, according to Tradeweb. Yields rise as prices fall.

The biggest moves in the Asia-Pacific region came in Korea, where the Kospi rose 1.1%. as attention–for now–shifted away from North Korea. The rebound came after five consecutive trading sessions in the red, to mark its longest losing streak since April. Gains were driven by the 2% rise in index heavyweight Samsung Electronics, amid a favorable outlook on demand for its organic light-emitting diode, or OLED, screens.

Recent tensions in the Korean Peninsula were a trigger for investors to pull back after this year’s robust gains, when stock indexes in markets like Hong Kong, South Korea, India and Singapore notched double-digit increases.

Elsewhere in the region, Hong Kong’s Hang Seng Index slipped 0.3% Thursday, while the Shanghai Composite Index fell 0.6%.

On Thursday, the Chinese central bank fixed the currency’s trading midpoint to the dollar at a fresh 16-month high. Some Chinese companies that operate abroad will likely benefit from a stronger yuan against the U.S. dollar, said Alexander Lee, chief investment officer at Hong Kong-based Nimbus Capital Group.

In Japan, the Nikkei Stock Average rose 0.2%. Automotive stocks were among the best performers in Tokyo as a slightly weaker yen boosted the competitiveness of the country’s exporters.

In commodity markets, Brent crude oil was down 0.3% at $54.05 a barrel. Gold rose 0.1% to $1,340 an ounce.
Source: Dow Jones

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