European markets on the rise, with BoJ inflation brings JPY weakness

• Mainland European markets on the rise, as we await durable goods data
• BoJ hike unlikely to be replicated, with inflation decline helping to weak JPY
• Previous metals turn higher despite recent fears of a more patient Fed

A mixed affair in European markets this morning sees the FTSE 100 struggle for direction as mainland indices push upwards. Nonetheless, we have seen a short period of outperformance in Europe, that could continue if the Federal Reserve continue to struggle in their bid to normalise inflation in time for the perceived June rate cut. However, we could yet see the US markets come back into prominence this afternoon as we cast our attention towards the core durable goods orders reading later on in the day. Coming off the back of a concerning 16-month low of -0.4%, another consecutive decline could help highlight a need for the Federal Reserve to take a more dovish tone despite concerns around driving prices down. Nonetheless, equity markets have by and large dispelled the fears of a more cautious approach from the Fed this year, with gains in treasury yields doing little to hold back indices given the record highs across the US indices last week. Meanwhile, the prospect of an impending period of monetary easing in Europe has sparked the likes of the DAX and FTSE 100 into life, with European indices enjoying a period of strength that has gradually awoken traders to the relatively affordable valuations offered in the region.

Overnight, the Japanese BoJ core CPI inflation read-out served to highlight why the recent historic rate rise will likely be a one-and-done scenario. The decline from 2.6% to 2.3% highlights a need to remain accommodative if they are to kick-start a period of inflation after years of flatlining prices. Unfortunately for the Yen, this recent rate hike provides little by way of optimism for JPY, with the expectation that this is an isolated event bringing additional declines after this overnight inflation read-out.

Precious metals have emerged as beneficiaries of the current market environment, experiencing an uptick as the dollar loses momentum. This inverse relationship between the dollar and precious metals like gold and silver is a classic financial market dynamic, where investors often turn to these assets as a hedge against currency devaluation. The wider picture remains constructive for gold and silver despite concerns that the Fed’s monetary easing will be delayed and slower than many had expected. Nonetheless, the view that we will inevitably see rates cut in the end does continue to provide support for precious metals, with fellow non-fiat assets such as Crypto also enjoying a strong 2024 thus far.