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Tech rebound leads stocks higher ahead of ECB rate cut

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Expectations of 25 basis point cut pin down borrowing

costs

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Oil bounds off near 3-year low

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Copper on course for best session since July

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Graphic: World FX rates http://tmsnrt.rs/2egbfVh

By Marc Jones

LONDON, Sept 12 (Reuters) - Share markets enjoyed a

fourth straight day of gains on Thursday as the prospect of

another ECB rate cut pinned shorter-term euro zone borrowing

costs near to their lowest level since the end of 2022, and the

euro to a 4-month nadir.

An overnight rally in supersized U.S. tech stocks and a

rebound in commodity markets was also helping the mood, but

focus was rapidly gravitating towards what message ECB chief

Christine Lagarde sends from Frankfurt shortly.

The central bank's second quarter-point rate cut of the

cycle is almost certain, but how hard and fast it moves for the

rest of the year still seems up in the air and this meeting will

throw new ECB staff forecasts into the mix.

Chief European Economist at BNP Paribas Paul Hollingsworth

said the crucial inflation projections might actually come in

higher than the last set in June, although they will have been

finalised before this month's dive in oil prices.

"We think that this will translate into a message of

gradualism," he said, adding that even if Lagarde does not

completely rule out a third cut in October, it does not look

likely for now at least.

Traders currently expect rates to drop to around 2% over the

next 12-18 months, "but if we are right on the base case",

Hollingsworth said, "the market is probably pricing in too many

cuts".

European shares, which have not enjoyed the same strength of

rebound this week as other parts of the world, were up a solid

1%, with tech stocks jumping 2.5% after Magnificent 7 powerhouse

Nvidia ( NVDA ) had surged on Wall Street on Wednesday.

Excitement that Italy's UniCredit might be about to make a

bid for Germany's Commerzbank also sparked a near 2% rise in

banking stocks. JPMorgan's analysts said that now Commerzbank

was "in play", its shares could leap by a fifth.

"We assume CBK (Commerzbank's) valuation at 20.9 billion

euros in our sensitivity which is based on 20% premium vs.

current share price," JPMorgan said in a research note.

The pre-ECB lull meanwhile kept the euro and sterling

hovering at just above $1.10 and $1.30

respectively, while rate-sensitive 2-year German government bond

yields bobbed at 2.18% having just dropped to their lowest level

since December 2022.

Overnight, MSCI's broadest index of Asia-Pacific shares

outside Japan had rallied 1.6%. The Nikkei

jumped 3.4%, helped by a weaker yen, which pulled back

from its 2024 high of 140.71 per dollar.

TECH REBOOT

The dollar was last up almost 0.2% to 142.57 yen,

having been pressured earlier by hawkish comments from a senior

Bank of Japan official who called for raising rates at least to

1%.

U.S. data on Wednesday meanwhile showed core consumer price

index rose 0.28% in August, compared with forecasts for a rise

of 0.2%. It was enough of a steer for markets to almost abandon

the chance of a half-point rate cut from the Federal Reserve

next week, with probability for such a move at just 15%.

"We wanted answers to help settle the 25bp vs 50bp Fed rate

cut debate on Friday, but now it seems the market has made its

own mind up," said Chris Weston, head of research at

Pepperstone,

"We are now comfortable with calling a 25bp cut for

September, but also open-minded to the idea that a weak U.S.

payrolls report on 4 October would fully open up a 50bp cut in

the November FOMC meeting."

Wall Street futures pointed to U.S. markets reopening

fractionally higher with weekly jobless claims coming up.

Wednesday's core inflation figures had initially pressured

the main S&P 500, Nasdaq and Dow Jones indexes, but tech stocks

had again came to the rescue, with AI darling Nvidia ( NVDA )

jumping 8% on talk the U.S. government is considering letting it

export advanced chips to Saudi Arabia.

Regional tech-heavy share markets in Asia followed suit,

with Taiwan adding 2.8% and South Korea gaining

1.7%.

Back in the rates markets, 2-year Treasury yields

edged up 1 basis point to 3.66%, having risen 4 basis points

overnight, while 10-year yields were at 3.6665%.

That left the 2-10-year yield curve flattening slightly and

barely remaining positive at less than 1 bp.

Oil extended gains on fears that Hurricane Francine could

lead to lengthy production shutdowns in the U.S.

Brent crude futures, which hit their lowest in

almost three years earlier this week, rose over 1% to $71.40 a

barrel, after gaining 2% overnight.

Industrial bellwether metal copper was having its best day

since July thanks to a 2% rally while gold was 0.2%

stronger at $2,517 an ounce, just a touch below its record high

of $2,531.60.

(Additional reporting by Stella Qiu in Sydney; Editing by

Alison Williams)