Entering European trading on Thursday (December 12th), global stock markets maintained a moderate upward trend, with investor sentiment supported by US consumer inflation data for November, which consolidated market expectations for the Fed's interest rate cut next week. At the same time, signs of easing US China relations boosted sentiment. On this trading day, investors welcomed a busy day of central bank decision-making, while also paying attention to the US PPI data.

European stock markets rose slightly while bonds fell, with market expectations that the European Central Bank would cut interest rates, and signs of easing US China relations boosted market sentiment.

The European Stoxx600 index showed little change at the opening, with sectors related to China (including luxury goods manufacturers and mining companies) performing relatively well. The Swiss stock market rebounded significantly, driven by the Swiss National Bank's interest rate cuts.

US stock index futures fell, with the Nasdaq index dominated by US technology stocks rising 1.8% overnight, breaking through 20000 points for the first time, while the S&P 500 index rose 0.8%.

The US CPI data has sparked a rise in the US stock market, "said Chris Weston, research director at Pepperstone

Market and other Chinese stimulus signals

After two consecutive months of decline, Asian stock markets rebounded, with the Chinese stock index trading in Hong Kong rising more than 2%, thanks to market expectations of more growth measures from Beijing and optimism about a possible interest rate cut by the Federal Reserve.

Traders are waiting for the details of China's two-day Central Economic Work Conference, which is expected to formulate policy plans for next year, following the stimulus signals released by the top leadership.

Bloomberg Intelligence analyst Marvin Chen said, "The conclusion of the Central Economic Work Conference should provide more clarity on the policy path, which will reflect the tone of the Politburo meeting that more support measures will be introduced next year

European Central Bank Resolution Arrives

The US Consumer Price Index data released on Wednesday met expectations, further consolidating the market's prediction that the Federal Reserve will cut interest rates by 25 basis points in late December. Swap traders are now almost completely pricing this action, with a 75% higher probability than a week ago.

With the possibility of the Federal Reserve cutting interest rates next week almost certain, investors are waiting for the European Central Bank's policy decision later on Thursday. According to a Bloomberg survey of analysts, the European Central Bank is expected to cut interest rates for the fourth time this year to ease pressure on the region's weak economy, while inflation approaches 2%. However, policy makers have differing opinions on the necessity of this round of loose policies.

Traders will pay attention to signals from European Central Bank President Lagarde regarding the outlook for economic growth and inflation in the coming months, particularly against the backdrop of political instability in France and Germany and the risk of tariffs imposed by the incoming Trump administration.

We expect a dovish 25 basis point rate cut and a signal of flexibility in future policy adjustments, "said Mohamad Al Saraf, a foreign exchange and interest rate analyst at Danske Bank." Although such an outcome is unlikely to significantly affect the euro/dollar, communication after the decision will be crucial, especially in the context of internal disagreements within the management committee

Analysts from Yuxin Bank stated in a report that the European Central Bank is expected to announce a 25 basis point interest rate cut tonight, which should have a neutral impact on euro denominated credit. Analysts say that if the central bank further cuts interest rates by 50 basis points, it is unlikely to be beneficial for euro credit as it will raise concerns about economic growth in the eurozone. Yuxin Bank stated that as the European Central Bank continues to cut interest rates, the euro credit spread may experience slight fluctuations or tightening in the coming months.

Swiss central bank unexpectedly cuts interest rate by 50 basis points

Prior to this, the Swiss National Bank unexpectedly announced a 50 basis point reduction in borrowing costs on Thursday, bringing interest rates down from 1% to 0.5%, marking the fourth consecutive rate cut. The market generally expected a 25 basis point rate cut, causing the Swiss franc to decline and drop to around 0.89 against the US dollar, the lowest level since November 22.

Karsten Junius, Chief Economist of J Safra Sarasin, said, "A 50 basis point rate cut is the right decision because inflation risks are on the decline, economic growth is below potential, and Switzerland's major export industries are facing structural and cyclical issues

The yield of 10-year US treasury bond bonds rose 2 basis points on Thursday to 4.291%, and is expected to rise nearly 14 basis points this week, the largest weekly increase since the end of October.

RMB strengthens

In the foreign exchange market, the US dollar index declined, easing the rise of treasury bond bond yields on Wednesday.

At the same time, the offshore renminbi has strengthened, and previously the Chinese Ministry of Commerce expressed willingness to engage in trade negotiations with the United States.  

The Chinese government set a higher than expected central parity rate for the renminbi on Thursday, indicating that the government continues to support the currency. Earlier, Reuters reported that China is considering devaluing the exchange rate next year.

The Japanese yen has remained relatively stable after three consecutive trading days of decline. According to insiders, Bank of Japan officials believe that the cost of not raising interest rates temporarily is small, but based on data and market developments, it is still possible to raise interest rates next week.

The euro rose 0.2% to $1.0509, having previously fallen to its lowest point in a week. The market generally expects the European Central Bank to lower eurozone interest rates by 25 basis points later that day. According to LSEG Refinitiv data, the market expects an 83% likelihood of the European Central Bank cutting interest rates by 25 basis points, while the likelihood of a 50 basis point rate cut is 17%.

In terms of commodities, oil remained stable after three consecutive days of gains. Traders are digesting comments that the United States may further restrict oil flows from Russia and Iran, and are awaiting the monthly outlook report from the International Energy Agency.

The price of gold has not changed much, rising to a high of $2725.79 in over a month earlier, the highest point since November 6th, mainly driven by expectations of further interest rate cuts by the Federal Reserve and low bond yields.