Stocks stay strong, BOJ caution trips yen

By Marc Jones

LONDON (Reuters) - High-flying stocks were cruising on Thursday as China's recent slew of support measures, and reassurances that Japan's interest rates will not shoot up, kept the bulls in charge following the latest record peaks on Wall Street.

Europe, where stocks are up nearly 15% since November, enjoyed a solid morning as fractional gains in London, Frankfurt, Paris and Milan kept MSCI's main 47-country world index at an almost two-year high.

A developed market-only version of that index, which is heavily skewed by the world's big tech and internet firms, ground out a new all-time high although groggy U.S. futures suggested it wasn't going to build on it. [.N]

Sizzling recent U.S. economic data meant bond traders were continuing to scale back how fast they expect top central banks to cut interest rates this year, while a tumble in Japan's yen showed just how flighty things have become.

"We are just trading central banks," Societe Generale's Kit Juckes said, after one of Japan's deputy central bank governors Shinichi Uchida stressed its rates were unlikely to be raised aggressively as it lifts them out of negative territory.

"Otherwise I think everyone is amazed by the U.S. data. It is just shockingly strong," Juckes added, pointing out surging jobs growth figures. His bank has just become the latest to scale back its forecast on U.S. rate cuts.

Both Fed and European Central Bank policymakers, but also some big emerging markets, have been pushing back against expectations of rapid cuts in recent weeks as they try to gauge whether the inflation spike that began two years ago really has been tamed.

The euro nudged down to $1.0750, while Germany's 10-year government bond yield, the benchmark for European borrowing markets, rose 3 basis points (bps) to 2.33%.

U.S. Treasury yields were a touch higher too at 4.13%. That left it up about 18 basis points for the month, although well below the 5% peaks of October.

Traders have almost written off the chance of a March Fed cut but are still pricing in an 80% probability of one as early as May, with futures implying around 120 basis points of easing for all of 2024, down from 145 basis points late last week.

Wall Street was poised for more jobs market data and big ticket earnings but looked ready for a breather after the latest record highs for the S&P 500 and Dow Jones Industrial Average. [.N]

Europe was still wading through a deluge of mixed numbers.

Shipping giant Maersk, drugmaker Astrazeneca and Credit Agricole all saw losses following dour results although shares of consumer goods behemoth Unilever jumped more than 2% as the group launched a 1.5 billion euro ($1.62 billion) share buyback and posted a robust rise in its sales. [.EU]

SHOT IN THE ARM

In Asia, Japan's Nikkei had surged 2.1% to close at its highest level in 34 years, helped by the BOJ's comments and a 10% leap in SoftBank shares after key holding Arm, which designs microchips, lifted profit forecasts.

Elsewhere, share markets mostly were higher but Hong Kong's Hang Seng was an outlier, closing down 1.3% and Alibaba slumping over 6% as it missed third-quarter revenue estimates.

India's markets wobbled too as its central bank pushed back against rate cut bets but mainland China's battered shares continued their recent rebound ahead of the Lunar New Year holiday, which starts on Friday.

The Shanghai composite index is up 4.9% since Monday, the biggest weekly gain since November 2022 and CSI the blue-chips index is going for the same, up 5.8%. [.SS]

Investors have taken leadership change at the top of China's market regulator, announced on Wednesday, as another sign that authorities are taking note of the pain.

Separately, data showed China's consumer price index (CPI) was down 0.8% in January from a year earlier, the biggest drop since 2009, although on a monthly basis, CPI rose 0.3%, picking up from the previous month.

In the commodity markets, oil prices steadied at just above $79 a barrel, having risen for a third straight day on Wednesday as Israel rejected a Hamas offer for a ceasefire in Gaza. [O/R]

Spot gold was flat at $2,031.72, bitcoin nudged up to $44,719, while the bellwether industrial metal copper ticked up off a 3-week low.

Wall Street's S&P 500 record high on Wednesday had been helped by gains in tech stocks again as well as strong earnings from Chipotle Mexican Grill and Ford.

Shares in the battered regional bank New York Community Bancorp had also turned around another tumble to close higher after the lender appointed a new executive chairman and said it could cut exposure to commercial real estate. ($1 = 0.9280 euros)

(Reporting by Marc Jones; Editing by Susan Fenton)