GLOBAL MARKETS-Euro, bonds lick wounds as ECB sticks to rate cut path

* Bonds and euro steady as ECB bolsters rate cut expectations * Wall Street opens higher after CPI-triggered drop * Traders pricing out Fed cuts * Japanese policymakers deliver intervention warning * Graphic: World FX rates http://tmsnrt.rs/2egbfVh By Marc Jones LONDON, April 11 (Reuters) - Reassurances that the European Central Bank still expects to cut its interest rates soon helped settle market nerves on Thursday, after a U.S. inflation scare had triggered the biggest global bond and stocks selloff in months and left Japan's yen at a 34-year low.

Reassurances that the European Central Bank still expects to cut its interest rates soon helped settle market nerves on Thursday, after a U.S. inflation scare had triggered the biggest global bond and stocks selloff in months and left Japan's yen at a 34-year low. Euro and bond dealers had been anxious after Wednesday's surprise U.S.

figures had sent the dollar on its biggest tear in over a year against the single currency by quashing hopes of a near-term Fed rate cut, but they breathed a sigh of relief as the ECB stuck to its guns.

"We are data dependent, we are not Fed dependent," ECB chief Christine Lagarde said in response to questions after the central bank held its key interest rate

at the 4% it has been at since September. If inflation continues to converge towards the ECB's 2% target "in a sustained manner" she added, "it would be appropriate to reduce the current level of monetary policy restriction."

Europe's bourses which had sagged in line with MSCI's main global index in morning trading, edged up slightly as Lagarde laid out the plans although an early lift on Wall Street also seemed to be helping the mood. Bond markets were still struggling however, after the 10-year U.S. Treasury yield - the main driver of global borrowing costs - had shot back above 4.5% in its biggest daily leap since September 2022 on Wednesday.

It was sitting at 4.57% in early U.S. moves, while Germany's 10-year bond yield - the European benchmark - dipped fractionally to 2.42%, after rising 6 bps on Wednesday although that was a small change compared to the 18 bps jump experienced by Treasury traders. "The key driver now remains U.S. rates," Amundi's Co-Head of Emerging Markets/Fixed Income Sergei Strigo said, pointing to Treasuries ploughing up through the 4.5% level again.

"The question is whether we are going to stick to these levels or are going to go higher". For ECB watchers, the bank has now kept its rates steady since September, with policymakers apparently awaiting a few more comforting wage indicators before pulling the trigger.

The currency bloc is now in its sixth straight quarter of economic stagnation and the labour market is starting to soften, an obvious contrast to the U.S. economy which continues to grow robustly. "While there are limits to how much ECB policy can diverge from the Fed over time, there is nothing to stop the ECB from cutting first or setting its own pace of cuts early on in the easing cycle," Deutsche Bank's Jim Reid said.

However he also pointed to how markets had cut the likelihood of an ECB cut by June back since the U.S. data shock. It was at around 80% after Lagarde took questions, down from 91% on Tuesday but also up from 75% before the ECB press conference. Likewise for the Bank of England, it fell from 74% to 56% on Wednesday Reid added, from 78% to 53% for the Bank of Canada and for the Reserve Bank of Australia it went from 25% to 21%.

Riksbank Deputy Governor Per Jansson

added his view too, saying the biggest threat to Sweden's plans to cut rates next month, "come mainly from the postponement of the rate-cutting plans of other central banks". INTERVENTION WARNING

U.S. stocks bounced modestly in early moves after Wall Street had fallen around 1% on Wednesday. The small moves in Treasury yields ensured they stayed near their highest levels since November too. Overnight in Asia, MSCI's broadest index of Asia-Pacific shares outside Japan slipped 0.4%, paring some earlier losses, while Japan's Nikkei dropped 0.35%.

It was the beleaguered yen that was the main focus though, after the roaring greenback knocked the Japanese currency to a 34-year low of 153.24 per dollar. It eased up slightly to 153.05 yen as the risk of government intervention potentially looms large now. Japan's top currency diplomat, Masato Kanda, warned on Wednesday that authorities would not rule out any steps to respond to disorderly exchange-rate moves.

"It's important for currency rates to move stably reflecting economic fundamentals," Japanese Prime Minister Fumio Kishida added on Thursday when asked about the yen's slide. It may seem like an over-reaction to a U.S. inflation miss of less than a tenth of a percentage point, but the heated March consumer price update has jolted markets into doubting any U.S. interest rate cut before the November election.

In commodities, metal prices were resilient in the face of a strong dollar while oil held gains after advancing more than 1% following an Israeli strike that killed three sons of a Hamas leader, fuelling worries that ceasefire talks might stall. Brent dipped 0.5% to just above $90 a barrel, and U.S. crude inched down to $85.70 per barrel. Gold prices gained 0.2% to $2,338.79 per ounce to keep them near this week's record high.

 

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)