European markets gained as investors stayed upbeat after the latest U.S. Federal Reserve decision, with automotive and technology stocks among the biggest risers.
The Bank of England is expected to keep monetary policy on hold in the face of rising inflation when the central bank releases its latest decision at 7 a.m.
The BOE is expected to use up the latest round of quantitative easing in full and is unlikely to announce any changes when it announces a policy decision, said RBC Capital Markets.
"This meeting is probably the last opportunity to make any meaningful change to the current GBP150 billion programme, as by November it will be largely completed," analysts at the bank said.
They continue to think the central bank "will see the current round of QE out in full." They expect another unanimous vote to hold the bank rate at 0.1% and an 8-1 vote to maintain the government bond target at GBP875 billion.
Investors also were digesting the Fed's decision to tee up a reversal of its pandemic stimulus measures in November. New projections released at the end of the Fed's two-day policy meeting Wednesday showed half of 18 officials expect to raise interest rates by the end of 2022.
That has given money managers confidence the Fed won't allow the current bout of inflation to become entrenched, said John Roe, head of multiasset funds at Legal and General Investment Management.
"The most interesting thing about both the current statement and also the last couple of statements has almost been a rowing back on the idea they're really going to let inflation rip before they take action," he said.
Norges Bank's 25 basis-point rate increase makes it the first in the G10 to begin a tightening cycle, said Capital Economics.
"Policymakers have all but confirmed that they will hike again in December, and we now expect them to raise rates back to the pre-virus level (1.50%) by the end of next year, which is faster than investors expect."
It added that the messaging was a bit more hawkish than expected, with the central bank arguing that increased activity and rising wage growth will help push inflation up towards the inflation target of 2%.
"We now expect the bank to raise rates once per quarter next year (we previously expected three rate rises), which we judge to be consistent with the 'gradual rise' that policymakers expect."
Data in focus:
September's flash purchasing managers index highlights an "unwelcome" combination of sharply slower economic growth and steeply rising prices, IHS Markit's chief business economist Chris Williamson said.
The eurozone flash composite PMI fell from 59.0 in August to 56.1 in September. According to IHS Markit, this decline reflects the peaking of demand in the second quarter, supply chain bottlenecks and concerns over the ongoing pandemic.
Firms' costs rose at the fastest rate in 21 years as demand again outstripped supply, IHS Markit said.
"Concerns over high prices, stressed supply chains and the resilience of demand in the ongoing pandemic environment has eroded business confidence, with expectations for the year ahead down to the lowest since January," Williamson said.
The Spanish economy in the second quarter grew more slowly than previously thought, at less than half the pace of the initial estimate, signaling that the recovery from the Covid-19 pandemic has been weaker than expected.
Spain's gross domestic product rose 1.1% in the second quarter compared with the previous three-month period, according to a second estimate released by the country's statistics office INE on Thursday. This was down from the 2.8% initially estimated.
Lower growth in household spending, along with higher imports, prompted the big downward revision, the data showed.
U.S. stock futures rose, pointing to gains for major indexes as investors remained upbeat that trouble with property giant China Evergrande Group can be contained.
Markets have been consumed this week with questions surrounding Evergrande, China's largest property developer. The heavily indebted company has issued billions of dollars of bonds to international investors, with many trading for a fraction of their face value.
However, fears around its possible collapse appear to have ebbed-at least temporarily. Evergrande has an $83.5 million coupon payment due Thursday on its U.S. dollar bonds and hadn't given an indication of whether it will miss the payment.
On Wednesday, the company's flagship property business said it would make an interest payment on an onshore bond, giving Evergrande more time to work out what investors expect will be a lengthy and complicated restructuring.
Weekly jobless claims data are due at 8:30 a.m. ET. Economists surveyed by The Wall Street Journal estimate that unemployment claims, a proxy for layoffs, declined to 320,000 in the week ended Sept. 18, from 332,000 the prior week.
Also coming, surveys of purchasing managers from a number of large economies will be scrutinized for signs of a further slowdown in global growth during September. IHS Markit is due to release figures for the U.S. service and manufacturing sectors at 9:45 a.m.
The dollar should strengthen after the Fed signaled that it could start tapering asset purchases as early as November while interest rates could rise by the end of next year, MUFG said.
Although many in the market had anticipated a more cautious tone from the Fed, the dollar's reaction overnight was modest, as the currency had already risen in advance of the meeting, said MUFG currency analyst Lee Hardman.
"Overall the hawkish policy signals should encourage a stronger U.S. dollar especially against low yielding currencies like the euro," he said.
The BOE's policy decision later represents a major risk event for sterling, said Lukman Otunuga, senior research analyst at FXTM. Markets widely expect the central bank to leave monetary policy unchanged, with traders' focus likely to turn to bank officials' comments on inflation, he said.
Sustained weakness in GBP/USD below 1.3670 could open a path back down towards the July low at 1.3570, he said. Conversely, a solid move above 1.3670 could prompt an advance towards 1.3750.
The Norwegian krone rose to its highest level in three months against the euro after Norges Bank raised interest rates to 0.25% from 0%, as expected, and signaled further gradual rate rises to come.
The central bank said the policy rate would likely be raised further in December and it now projects rates at 1.7% toward the end of 2024. "The path implies that the policy rate will rise slightly faster and end at a slightly higher level than projected in the June Report," it said.
Activity is now higher than its pre-pandemic level and the economic upswing will likely continue through fall, Norges Bank said.
The Swiss franc edged lower after the Swiss National Bank held its policy rate at minus 0.75%, as expected, and reiterated that the currency "remains highly valued."
The euro rose 0.3% as it continued to recover after falls that took it briefly below $1.1700 following the Fed announcement. The currency shrugged off weaker provisional eurozone purchasing managers' indexes for September.
"There are increasing signs that the euro area economy will not be able to maintain the high pace of growth in the final quarter," said Commerzbank economist Christoph Weil. He notes, however, that price indexes point to "continued high inflationary pressure."
In the bond market, the yield on 10-year Treasury notes ticked down to 1.331% from 1.332% Wednesday.
Eurozone government bond yields were trading higher after the Fed announcement. "A hawkish Fed is moving 'ahead of the curve' and markets have little time to catch their breath," Christoph Rieger, head of rates and credit research at Commerzbank, said.
Oil prices rose thanks to rising equity markets and risk sentiment. Brent continued higher Thursday to around its highest since mid-July despite the release of what DNB Markets' Helge Andre Martinsen described as the EIA's release of bearish-to-mixed inventory data on Wednesday.
Despite those figures, API readings released Tuesday were remarkably more upbeat and broader context shouldn't be ignored, he said. "We started the year with total petroleum inventories above the five-year high and is now established below the five-year low, a remarkable transition," Martinsen said.
Gold weakened after the Fed annoucement. "The gold price--surprisingly, in our opinion--did not react much to the Fed's hawkish signals and statements. Presumably this was due in part to the fact that the U.S. dollar appreciated only slightly and bond yields hardly change," said Commerzbank.
Three-month copper on the LME wavered between gains and losses. The metal was last up 0.3% at $9,299 a metric ton.
Norges Bank Lifts Key Rate, Sees a Further Raise in December
Norges Bank on Thursday became the first major central bank to raise interest rates after the Covid-19 pandemic, lifting its key rate to 0.25% from zero while suggesting a further raise later this year.
The raise marks the first move since the Norwegian central bank cut it to zero in May last year as the pandemic took hold.
Reckitt Benckiser Performance Since July 27 in Line With Views
Reckitt Benckiser Group PLC said on Thursday that its performance since July 27--when it published first-half results--has been in line with management expectations.
The London-listed consumer-goods company, which houses Dettol, Harpic and Durex among its brands, said that it continues to be confident in delivering like-for-like revenue growth of between 0% to 2% for 2021. It added that it expects adjusted operating profit margins of between 22.7% and 23.2% for the year.
Royal Mail Sees 1H Adj Operating Profit GBP395 Mln-GBP400 Mln
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