GLOBAL MARKETS-European bonds and stocks hold gains; ECB meeting in focus as Lagarde confirms early exit

Europe's government bond and stock markets rallied on Thursday as traders waited ‌on the ​European Central Bank's next move and for results from Amazon and Intel after Alphabet's shares became the latest to be hammered by AI spending worries. Europe's STOXX 600 was up 0.5% despite a 1% slide in Nasdaq futures and some erratic trading in Asia after Alphabet's hefty cash burn looked set to wipe nearly $400 billion off its shares later.

Both the euro and euro zone government bond market ‌yields were edging lower, meanwhile, as oil and natural gas prices dipped ahead of what is widely expected to be a pause in the ECB's rate hike cycle in Frankfurt later. There was also breaking news that ECB President Christine Lagarde had confirmed, after months of speculation, that she was to step down early and leave her post in February.

Wednesday had also seen a rally in US Treasuries after Federal Reserve Chair Kevin Warsh struck a more confident tone on the inflation outlook following the Fed's decision to keep rates steady. RBC's European Macro Strategist George Moran said ‌his bank expects the ECB to hold rates at 2.50%, with a further final hike to 2.75% in December, although money markets are pricing as many as three additional increases.

"Widening sovereign spreads — particularly for France — give the ECB cover to avoid further aggressive ‌tightening," Moran said, despite the recent surge in energy prices. The main gauge of French concerns — the yield gap between Paris' government bonds and triple-A-rated German Bunds — was at 153.50 basis points on Thursday, having hit a near 15-year high of almost 178 basis points last week.

Lagarde's February departure from the ECB meanwhile means French President Emmanuel Macron and other European Union leaders will be able to fill one of the bloc's most powerful economic positions before France's presidential elections in the spring. It is a vote that opinion polls point to far-right candidate Marine Le Pen winning.

"This is driven, I would presume, by the French election," SEB Investment Management's head of asset allocation, Carl Hammer, ⁠said. "Clearly politics is ​having an increasingly important role for central banks." BIG SPENDERS, BIG FALLS

Overnight, MSCI's broadest ⁠index of Asia-Pacific shares outside Japan dropped nearly 0.5%, while Japan's Nikkei ended up more than 1% after another day of swings. The region's bigger test had come from earnings. Samsung reported another set of record results thanks to booming demand for its memory chips, but it was silent on plans to boost returns, which sent its ⁠shares down 4%.

That weighed on South Korea's KOSPI index, which fell 1.2% after a nearly 7% surge a day earlier. Another AI darling, SK Hynix, continued to surge though as its plans to return about $75 billion to shareholders this year took its two-day gain past 15%. Nasdaq futures were pointing to a fall ​for US markets later.

Alphabet was down 10.5% in premarket trading after the company reported disappointing results in the firm's core search business and a massive acceleration in cash burn as it poured resources into building out AI. That focus on AI spending will ⁠continue on Thursday too with both Intel and Amazon due to report their earnings after US markets close.

SEB's Hammer added that rising costs of developing AI were making the outlook "definitely more challenging" for asset allocators following the years-long stock market bull run. "We are keeping a constructive view as of now (on equities) but it's getting more complicated ... the bulk ⁠of ​the risks in portfolios are driven by the AI infrastructure cycle."

OIL DIPS Macro data is set to keep coming too, with both US personal consumption expenditures figures — the Fed's preferred gauge of inflation — and US Q3 GDP data due to be released later.

Forecasts are centred on a 0.3% monthly rise in the core measure of PCE inflation, picking up from a 0.2% gain the previous month. Markets are still 80% priced for a rate rise in December despite Wednesday's dovish comments from Warsh, which led to a steepening of the Treasury yield curve. ⁠The 2-year Treasury yield fell about 5 basis points overnight and was last at 4.68%.

The dollar was flat against its major peers after a 0.2% dip on Wednesday following the Fed decision. Ahead of the ECB, the euro was hovering around $1.1145, having fallen almost ⁠2% this month against the dollar and 2.5% against sterling.

Data also show ⁠investors have built up their biggest short position on the euro in a decade, one that is currently worth almost $19 billion. In the commodity markets, Brent futures fell 1% to $114 a barrel after the Wall Street Journal reported US Vice President JD Vance had sent a letter to Iranian Security Council chief Mohsen Rezaei in an effort to revive peace negotiations.

Qatari mediators have also presented Iran with ‌a new draft deal to end the war, an ‌official briefed on the negotiations told Reuters, though a senior Iranian official dismissed what had been presented as unacceptable ideas that did not ​amount to an offer.