Investors Hold Fire Ahead of ECB Decision -- Update

By Christopher Whittall and Kenan Machado Features Dow Jones Newswires

Global stocks were little changed Thursday, while the euro edged higher, as investors waited for clues on when the European Central Bank could begin to scale back its huge bond-purchase program.

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The Stoxx Europe 600 swung between small gains and losses in European morning trade. Futures pointed to a 0.2% opening loss for the Dow Jones Industrial Average after Wall Street closed slightly higher on Wednesday. Most Asian markets were little changed.

On Wednesday, U.S. stocks rose slightly after President Donald Trump backed a deal with congressional Democrats to attach hurricane relief money to a three-month extension of both government funding and the debt limit.

The surprise deal suggests Mr. Trump could show more flexibility on other spending initiatives with the Democrats. It also prompted some modest moves in U.S. government bonds and the U.S. dollar, though the stock market reaction was muted.

In Europe, investors are turning their attention to the ECB's policy meeting later Thursday in the hope of getting more details on when the central bank could scale back its bond purchases. Central bank stimulus programs have helped boost stocks and bonds in recent years.

The ECB has said it would make a decision on its bond-purchase program in the fall. Most analysts aren't expecting an announcement Thursday, but are hoping for further clues on the central bank's thinking, including the release of new economic forecasts. Some highlight that the recent gains in the euro, along with stubbornly low inflation, could complicate any plans to scale back its extraordinary stimulus measures.

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"Inflation is just moving sideways in Europe," said Jean Boivin, head of economic and markets research of the BlackRock Investment Institute.

"It's going to become very tricky for the ECB to tell a convincing story of why there needs to be a significant change in policy at this stage," he added.

One particular headache for the ECB is the strong gains in the euro over the past several months, which can damp inflation by pushing down the price of imports. The euro rose 0.4% against the dollar Thursday to $1.1963, taking its year-to-date gains to 13.7%.

"The biggest focus will be on how much pushback we get on the strength of the euro," said Seamus Mac Gorain, a portfolio manager at J.P. Morgan Asset Management.

Mr. Mac Gorain said there is a limit to how far the ECB can talk down the currency given the strong growth in the eurozone and the fact that the euro doesn't look overly expensive based on traditional currency valuation models. Still, the euro's rapid appreciation in recent months will mean the ECB won't "want it to go too much higher from here," he added.

Elsewhere in currency markets, the WSJ dollar index, which measures the dollar against a basket of 16 other currencies, slipped 0.2%.

In bond markets, the yield on the 10-year German government bond was slightly higher at 0.360%, according to Tradeweb, tracking Wednesday's rise in the 10-year Treasury yield following the debt ceiling deal in Washington. The 10-year Treasury yield was slightly lower Thursday at 2.093%. Yields rise as prices fall.

The biggest moves in the Asia-Pacific region came in Korea, where the Kospi rose 1.1%. as attention -- for now -- shifted away from North Korea. The rebound came after five consecutive trading sessions in the red, to mark its longest losing streak since April. The Kospi's rise was driven by gains from heavyweight Samsung Electronics amid a favorable outlook on demand for its organic light-emitting diode, or OLED, screens.

Elsewhere in the region, Hong Kong's Hang Seng Index slipped 0.3% Thursday, Japan's Nikkei Stock Average rose 0.2% and the Shanghai Composite Index fell 0.6%.

On Thursday, the Chinese central bank fixed the currency's trading midpoint to the dollar at a fresh 16-month high. Some Chinese companies that operate abroad will likely benefit from a stronger yuan against the U.S. dollar, said Alexander Lee, chief investment officer at Hong Kong-based Nimbus Capital Group.

In commodity markets, Brent crude oil rose 0.6% to $54.52 a barrel. Gold rose 0.2% to $1,342 an ounce.

Write to Christopher Whittall at christopher.whittall@wsj.com and Kenan Machado at kenan.machado@wsj.com

(END) Dow Jones Newswires

September 07, 2017 05:16 ET (09:16 GMT)