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 ( BA ), are all in

focus on Wednesday before Thursday'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 ( BA )

Policy: ECB's Tuominen, McCaul, Schnabel speak, Bank of

Canada minutes published