GLOBAL MARKETS-Shares rise as ECB points to peak rates, China eases

Rising oil prices helped push share markets higher on Thursday as China made its latest attempt to pep up its stuttering economy and the European Central Bank signalled its 10th straight interest rate hike could be its last for a while. A more than 3% jump in Europe's oil and gas and mining stocks ensured reaction to the ECB's hike was limited, although both the euro and yuan fell against the dollar after their respective central banks' moves.

Rising oil prices helped push share markets higher on Thursday as China made its latest attempt to pep up its stuttering economy and the European Central Bank signalled its 10th straight interest rate hike could be its last for a while.

A more than 3% jump in Europe's oil and gas and mining stocks ensured reaction to the ECB's hike was limited, although both the euro and yuan fell against the dollar after their respective central banks' moves. A weakening economy but stubbornly high inflation had made the ECB's decision a virtual a coin toss in the run up to its meeting, so traders were looking to ECB President Christine Lagarde's press conference for a full explanation.

"Based on its current assessment, the Governing Council considers that the key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target," the ECB chief said in the bank's post-hike statement. The People's Bank of China's 25 basis point reserve requirement ratio (RRR) cut, meanwhile, had followed cuts in two of its other key policy rates over the last month as Beijing's policymakers have looked to provide help.

On the ECB's upcoming press conference, Axa's Chief Economist Gilles Moec said: "What is going to be interesting is how they manage the forward guidance". "If they still sound profoundly worried about inflation the market could get into a bit of trouble," he added. "Core inflation has not really slowed down and if you are worried about wage developments then you have more to be concerned about than six months ago."

While the stock markets were broadly higher it wasn't a one-way street. Europe's carmakers were stuck in reverse after Beijing criticised Brussels' move on Wednesday to investigate electric vehicle subsidies as "naked" protectionism.

S&P 500 futures also trimmed some gains in New York as robust retail sales and producer prices data fanned expectations of more U.S rate hikes in the coming months. The ECB, the central bank for the 20 countries that share the euro, had faced a dilemma. Even after its blitz of rate hikes, prices are still rising at more than twice its 2% target and are not expected to get back to that level for another two years.

A recent run of weak data had left investors leaning towards a pause until Reuters reported on Tuesday that the bank's new staff projections would raise the inflation forecast for next year to more than 3% again. On Thursday, they showed inflation is now seen at 5.6% in 2023, 3.2% in 2024 and 2.1% in 2025.

The growth outlook has meanwhile continued to sour and the ECB now sees a 2023 expansion of just 0.7% after predicting 0.9% three months ago. For next year, it sees the economy growing by 1.0% with no big upswing on the horizon. Germany’s 10-year government bond yield, the benchmark for the euro area's borrowing costs, was last down 4 basis points (bps) at 2.613%. The yield, which moves inversely to the bond’s price, stood at 2.638% just before the decision.

"We hope that it will be clear from (their explanations) that this hike puts an end to the rapid increase in interest rates that we have seen over the last year," Spanish Economy Minister Nadia Calvino told reporters in Santiago de Compostela. CARS SKID

Stock market moves showed how investors were digesting Wednesday's announcement that the European Commission was investigating subsidies provided by China to increasingly heavyweight electric car makers like BYD. Beijing responded overnight, calling the move "a naked protectionist act" and warning the EV probe would hurt relations with the EU.

As analysts feared a tit-for-tat tariff war, BMW, Volkswagen and Mercedes and Fiat and Peugeot maker Stellantis were all down between 1% and 2%. "For German OEMs (vehicle makers), the risk of retaliation in China should not be ignored," UBS analysts said.

China's carmakers had also seen a drop overnight, although there had been less impact elsewhere in Asia. MSCI's broadest index of Asia-Pacific shares outside Japan had risen 0.6% for its best session in a week and a half.

Tokyo's Nikkei rose 1.4% to a one-week high. India's BSE Sensex rose 0.5% to a new record peak and S&P 500 futures were up as much as 0.3%. Wednesday's data showed higher fuel prices had lifted headline U.S. consumer prices by the most in 14 months in August for an annual rate of 3.7%, which was a touch above expectations. Core inflation slowed to an annual 4.3%, as expected.

Treasury yields initially spiked higher, as did the U.S. dollar, before both retraced the moves. Fed funds futures hardly budged, and imply nearly no chance of a rate hike next week, and about a 45% chance of another hike by year's end. SHOT IN THE ARM

In foreign exchange markets, the dollar was higher again. The yen has mostly handed back gains it had made after Bank of Japan Governor Kazuo Ueda hinted at the conditions for an end to negative short-term rates, as traders figure on any exit being slow and the gap with U.S. rates remaining wide.

As well as Thursday's RRR cut, China's central bank has also asked some of the country's biggest lenders to refrain from immediately squaring their foreign exchange positions in the market, two sources with knowledge the matter told Reuters. Another big focus for stock markets will be chip designer Arm Holdings when it begins trading in New York later, after a $51-a-share float - the biggest of the year so far - gave it a valuation of $54.5 billion.

In commodities, oil is riding high as Saudi Arabia and Russia extend production cuts to the end of 2023. Brent crude futures are up 30% in the last three months and were up another 1.5% on the day at just over $93 a barrel in London. "The market remains beholden to Saudi Arabia's oil policy," said analysts at ANZ Bank, who said if cuts were extended into the first half of next year, Brent prices could hit $100.

(Additional reporting Tom Westbrook in Singapore; Editing by Toby Chopra and Jane Merriman)