A look at the day ahead in European and global markets from Tom Westbrook

Strong business activity indicators in Europe and an unexpected cooling in the U.S. have carried the euro above $1.07.

Investors were encouraged by Tesla’s promises of new models next year, which sent the electric vehicle maker’s shares soaring 13% in after-hours trade, even as its results showed profit, revenue and revenue-per-vehicle fell. Tesla’s shares have had a torrid 2024, having fallen 42%.

An inflation surprise in Australia lifted the Aussie back to its 200-day moving average on the dollar.

But the yen is unloved at 34-year lows, leaving markets on their highest alert for intervention since 2022.

Then, the Japanese government sold about $20 billion in a few hours after a dovish Bank of Japan meeting, and traders see the risk of a repeat.

Japan is in unfamiliar inflationary territory. The BOJ, the modern pioneer of quantitative easing, is just as alone in the journey back. It grew its balance sheet bigger than the Japanese economy and owns half the government bond market.

Governor Kazuo Ueda has said he will raise rates if inflation accelerates, but markets are expecting caution and the rates outlook is pretty modest.

About 20 basis points of hikes are priced this year – pretty small beer when the gap between U.S and Japanese short-term rates is more than 500 basis points. The yen traded around 154.85 on Wednesday in the Asia session.

Stocks galloped ahead, encouraged by the European business data and some relief for the rates outlook as cooler U.S. numbers suggest the booming economy may be losing momentum. Japan’s Nikkei rose 2.3%.

German business sentiment, European policymaker speeches and earnings, including Meta and Boeing, are all in focus on Wednesday before Friday’s U.S. core PCE reading.

In China, where bond markets have been on a record-breaking rally, yields on long-dated bonds jumped after the central bank warned about risks.

Key developments that could influence markets on Wednesday:

Economics: German Ifo survey

Earnings: Electrolux, Eni, Orange, Meta, Ford, Bunge, AT&T, Hilton, Boeing

Policy: ECB’s Tuominen, McCaul, Schnabel speak, Bank of Canada minutes published

(This story has been corrected to show that U.S. core PCE reading will be on Friday, not Thursday, in paragraph 10)

(Reporting by Tom Westbrook; Editing by Muralikumar Anantharaman)

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