Finance

Stocks in trouble ahead of key US inflation report: Markets Wrap


(Bloomberg) — European stocks and U.S. stock index futures moved slightly in cautious trading ahead of the release of much-anticipated inflation data that could provide clues on the timing of a rate cut by the Federal Reserve.

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European auto stocks were the best performers, with tire maker Michelin rising after earnings and a share buyback announcement. Overall, Europe’s Stoxx 600 fell 0.3%, while U.S. stock futures were little changed. U.S. Treasuries and the dollar were steady ahead of the inflation report. It is expected to show headline inflation below 3% for the first time since March 2021, supporting optimism that price pressures are easing.

Win Thin, head of global market strategy at Brown Brothers Harriman & Co., said, “We expect these data to continue to confirm that the Fed’s easing cycle is much less aggressive than the market currently expects. This is Should help support the dollar.”

UK wage growth slowed less than expected in the fourth quarter and the pound strengthened, underscoring the Bank of England’s need to wait before cutting interest rates. Money markets have pared back bets on the Bank of England’s easing policy, with traders betting on a 71 basis point rate cut in 2024, down from 78 basis points on Monday.

Meanwhile, Asian shares rose for the first time in four days, led by Japanese shares. Japan’s Nikkei 225 index posted its biggest gain since November 2022, with technology stocks leading gains after Tokyo Electron Ltd. boosted full-year revenue and profit. Markets in China, Hong Kong, Taiwan and Vietnam are closed for the Lunar New Year holiday.

Thomas Barkin, president of the Federal Reserve Bank of Richmond, said one potential risk to inflation falling back toward the central bank’s target comes from U.S. businesses. In recent years, many companies have increased their profit margins by raising prices, a practice that may be difficult to change and may affect the profits of U.S. companies. Provide upward pressure on inflation.

Bond traders are now more in line with the Fed’s interest rate trajectory, but strategists at Citigroup said the market is ignoring the risk of higher rates following an easing cycle.

“Markets should factor in some risks from future rate hikes — look at 1998,” Jason Williams, global market strategist at Citigroup, wrote in a note. This cycle “may be more similar to 1998.” The easing cycle is short-lived, and “this will lead to more rate hikes. If inflation does not return to a stable 2%, then the upward tail of future Fed rate hikes should start from this very depressed level.” Increase.”

Back in Asia, the yen fell to around $149 against the dollar on Tuesday, down from $140 at the start of the year. Recent weak comments from BOJ officials reflect that the central bank will not be in a rush to exit supportive policies. After a severe contraction in the summer, annualized growth is expected to return to 1.2% in the fourth quarter.

SoftBank, one of Japan’s largest listed companies, rose 6.3% after further gains in Arm Holdings Plc, in which it holds a stake. Arm shares rose 29% in New York trading on Monday, nearly tripling since listing in September. Asian semiconductor stocks were expected to post their highest close in nearly two years, driven by a strong profit forecast from Tokyo Electron and a rise in Nvidia shares overnight, a Bloomberg measure said.

“What you’re seeing here is a craze for anything related to artificial intelligence,” said Dennis Dick, a trader at Triple D Trading. “Algorithms are getting involved, retail traders are getting involved, people are buying options. All of this is just snowballing.” .”

Oil prices rose for a sixth straight day ahead of OPEC’s market outlook, with traders also eyeing developments in Israel’s war with Hamas. Gold was little changed after falling slightly on Monday, trading around $2,020 an ounce.

Main events this week:

  • Germany ZEW survey expectations, Tuesday

  • U.S. consumer price index, Tuesday

  • Eurozone industrial production, GDP, Wednesday

  • Bank of England Governor Andrew Bailey gave evidence to the House of Lords economic affairs panel on Wednesday

  • Chicago Fed President Austen Goolsby speaks Wednesday

  • Federal Reserve Vice Chairman for Supervision Michael Barr spoke on Wednesday

  • Japan’s gross domestic product, industrial production on Thursday

  • US Empire Manufacturing, Initial Jobless Claims, Industrial Production, Retail Sales, Business Inventories, Thursday

  • European Central Bank President Christine Lagarde speaks on Thursday

  • Atlanta Fed President Raphael Bostic speaks Thursday

  • Fed Governor Christopher Waller speaks Thursday

  • ECB Chief Economist Philip Ryan speaks on Thursday

  • US housing starts, PPI, University of Michigan consumer confidence index, Friday

  • San Francisco Fed President Mary Daly speaks on Friday

  • Michael Barr, the Fed’s vice chairman of oversight, spoke on Friday

  • ECB Executive Board member Isabelle Schnabel speaks on Friday

Some major trends in the market:

stock

  • As of 8:19 a.m. London time, the Stoxx Europe 600 index fell 0.3%

  • S&P 500 futures little changed

  • Nasdaq 100 futures fell 0.1%

  • Dow Jones Industrial Average futures were little changed

  • MSCI Asia Pacific index rose 0.8%

  • MSCI emerging markets index rose 0.3%

currency

  • Bloomberg U.S. Dollar Spot Index little changed

  • EUR/USD was little changed at $1.0770

  • The yen fell 0.2% to 149.68 per dollar

  • The offshore RMB exchange rate against the U.S. dollar was little changed at 7.2167

  • Sterling rises 0.1% to $1.2647

cryptocurrency

  • Bitcoin rises 0.5% to $50,077.94

  • Ethereum rises 0.9% to $2,656.47

bond

  • The 10-year Treasury yield rose 1 basis point to 4.19%

  • Germany’s 10-year bond yield rose 1 basis point to 2.37%

  • UK 10-year government bond yield rose 4 basis points to 4.09%

commodity

  • Brent crude rose 0.3% to $82.24 a barrel

  • Spot gold rose 0.2% to $2,024.75 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With help from Eddy Duan and Jan-Patrick Barnert.

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