World shares rose and the dollar and bond market borrowing costs held steady on Thursday ahead of U.S. inflation data and European Central Bank meeting minutes that will add to the hotly-contested debate on where interest rates are heading.
The week's sharp escalation of Middle East tensions ensured the mood remained cautious but European stocks shuffled to a 3-week high early on after a 1.75% jump from Tokyo (.N225) had done the same for Asia.
Wall Street futures , were 0.3% higher too, while the dollar was hovering near a two-week low after Fed meeting minutes on Wednesday had showed a caution about the economy starting to set in among rate setters.
News that Central Huijin Investment, a Chinese state fund, raised stakes in the country's big four banks had also boosted confidence in the broader Asian market as Hong Kong's heavyweight Hang Seng index (.HSI) jumped 2.0%.
China, however, has also issued a notice prohibiting domestic brokerages and their overseas units from taking on new mainland clients for offshore trading, which will restrict capital outflows, Reuters reported on Thursday.
The recent buoyancy in markets also owes much to comments from Fed officials suggesting U.S. interest rates - which tend to drive global borrowing costs - may have finally peaked.
U.S. Fed Governor Christopher Waller on Wednesday said higher market interest rates may help the Fed slow inflation and allow the central bank to "watch and see" if its own policy rate needed to rise again or not.
Waller has been among the most vocal advocates for higher interest rates to fight inflation, and his view added weight to similar statements this week by Fed Vice Chair Philip Jefferson and Dallas Fed President Lorie Logan.
European trading saw the dollar drifting near a two-week low, but the yen was still under pressure at 149.11 per dollar, just a whisker away from the 150 level that could spur intervention from Japanese authorities.
Markets moved to further trim the chance of a Fed hike in November to just 9%, down from 13.2% a day earlier, and there is a 70% chance that the rate is already at its peak, according to CME FedTool.
With the long-awaited pivot for the Fed in sight, traders are bracing for the all-important U.S. consumer inflation report later. Stakes are even higher than usual after producer price inflation came in hotter than expected on Wednesday.
Economists expect the headline consumer price index (CPI) to haven risen 0.3% in September on a monthly basis, slowing from 0.6% in August. Core CPI is seen holding steady at 0.3%.
Alan Ruskin, chief international strategist at Deutsche Bank, said an upside surprise in the core rate of 0.4% or more would catch investors off guard, although geopolitical risk was likely to deter the bond market from trading too bearishly on stronger data.
"The more lasting impact to the data would likely come from a 0.4% m/m core number, which would mean that the two most important data releases for September numbers (non-farm payrolls and CPI) would both be making a case for the Fed remaining hawkish," he said.
