Stocks bouyed by cheery data after BOJ damp squib

World stocks rose and Japan's yen tumbled on Wednesday, after the Bank of Japan poured cold water on monetary tightening expectations and economic and earnings data proved cheery for European markets.

Data showed UK inflation dropped to a three-month low of 10.5% in December, the latest sign that global inflationary pressures are abating. European shares climbed after a string of positive earnings updates.

Europe's STOXX 600 index rose to its highest level since April 2022.

Three factors have propelled stock markets higher, Andreas Bruckner, european equity strategist at BofA Global Research, said.

These were an expectation for a dovish pivot from the U.S. Federal Reserve, economic data that showed companies working overtime to deal with order backlogs, and China's economy re-opening faster than expected from COVID-19 lockdowns.

"But the sugar high that markets are on will eventually disappear because it will be impossible to mask an underlying weakness in economic demand," said Bruckner.

London's FTSE 100 scaled a fresh 4-1/2-year high after the latest UK inflation numbers, although worries over tight monetary policy remained as the rate hovered in double-digit territory.

The internationally focused FTSE 100 <.FTSE> edged 0.1% higher. The pan-European STOXX 600 was 0.2% higher, boosted by rate-sensitive technology stocks, while U.S. stock futures were mixed.

MSCI's broadest index of Asia-Pacific shares outside of Japan rose 0.4%.

JAPAN

The market spotlight was also on Japan, where the yen slid and government bond yields fell the most in two decades at one point, retreating sharply from the central bank's 0.5% ceiling after policymakers decided to keep yield curve controls in place.

The 10-year yield plunged as much as 14 basis points to 0.36% at its lowest point, which would have been the biggest one-day decline since September 2003, before edging back up to 0.43% as of 1024 GMT. The yield was at 0.51% prior to the Bank of Japan decision.

In a Reuters poll, 97% of economists expected the BOJ to maintain its ultra-easy policy at the meeting.

"It was a tough day for the bond vigilantes who were positioned to bully the BOJ into a policy change not justified by their economic forecasts," said Sean Callow, a senior currency strategist at Westpac.

The dollar was up 1% at 12.953 yen but well off session highs.

The dollar index, which measures the safe-haven dollar against six peers, rose 0.4%. It has been undermined lately by falling U.S. bond yields as markets wager the Federal Reserve can be less aggressive in hiking rates.

The pound rose over 0.4% and the euro gained 0.6%.

ENERGY PRICE RALLY

Oil prices rose on Wednesday, extending the previous session's gains, driven by optimism that the lifting of China's strict COVID-19 curbs will lead to a recovery in fuel demand in the world's top oil importer.

Brent crude LCOc1 futures vaulted 1.30%, to $87.03 a barrel by 1025 GMT, following a 1.7% rally in the previous session.

In less than three weeks of 2023, foreign buying of Chinese stocks has exceeded last year's total as investors bet on the country's rapid recovery after COVID-19 lockdowns were lifted.

China's Vice Premier Liu He said he welcomed foreign investment and declared his country open to the world after three years of pandemic isolation.

Data on Tuesday showed China's economic growth had slumped in 2022 to 3.0% - the weakest rate in nearly half a century.

Spot gold rose over 0.2% to $1,913 per ounce., while copper prices touched seven-month highs.

Three-month copper on the London Metal Exchange was up 0.9% at $9,367.50 a tonne.