As US inflation figures approach, global equities remain stable

As US inflation figures approach, global equities remain stable

European stocks rose again on Wednesday, although bond yields remained below recent highs ahead of US inflation data that will indicate how aggressively the Federal Reserve will raise rates. Before the release of the much awaited datapoint, economists say it could signal inflationary pressures in the world’s largest economy are peaking, Asian markets pushed higher from near two-year lows, while Wall Street futures also climbed.

Concerns over faltering growth, exacerbated by the latest virus lockdowns in China, curbed a selloff in government bonds that saw 10-year U.S. benchmark yields surge past 3% this month for the first time since December 2018. “It’s an unanchored market where people don’t know where (yields) are going. The growth side is coming more and more to the fore in terms of market concerns,” said Charles Diebel, head of fixed income at Mediolanum International Funds.

MSCI’s benchmark for global stocks rose 0.2% by 0822 GMT after sliding on Tuesday to its lowest level since November 2020 on fears Fed tightening could significantly slow down the global economy. The index is down 17% so far this year. The pan-European STOXX 600 index rose 0.7%. U.S. equity futures rose, with the Nasdaq and S&P 500 e-minis up 0.8% and 0.7% respectively.

“If inflation continues to print higher and higher the market will continue to sell-off. Intuitively inflation cannot keep going up as base effects will unwind at some point but are we are that price yet?” he added. Analysts expect the U.S. consumer price index to show a sharp pullback in monthly growth, cooling to 0.2% in April from 1.2% in March.

Chinese data released on Wednesday however showed consumer prices gained 2.1% from a year earlier, above expectations and at the fastest pace in five months, partly due to food prices. U.S. Treasuries pulled back in European trading hours ahead of the data. The benchmark 10-year note yield was down 4.7 basis points to 2.9421%, extending its fall from the three-year high of 3.203% hit on Monday. The U.S. two-year yield, which often reflects the Fed rate outlook, fell 1.4 basis points to 2.592%.

They also predict an annual increase of 8.1%, 0.4 percentage points lower than the prior 8.5%, which was the hottest reading since December 1981. In Asia, Chinese blue chips rose 1.4% after Shanghai officials said half the city had achieved “zero COVID” status, and after U.S. President Joe Biden said he was considering eliminating Trump-era tariffs on China.

Bets on aggressive Fed tightening have also supported the dollar this year. The dollar index, which measures the greenback against six main peers, fell 0.3% to 103.65, below the two-decade high of 104.19 reached the start of the week. The Fed last week raised interest rates by 50 basis points and Chair Jerome Powell said two more such hikes are likely at the U.S. central bank’s coming policy meetings. There has also been speculation in markets the Fed will need to go in for a massive 75 basis point hike at one meeting and currently Money markets are pricing over 190 basis points of combined rate hikes by year.

“The current problem is that the market is convinced that the Fed is determined to fight inflation and therefore willing to tolerate market volatility and some demand destruction more than in the past. I’m less convinced of this determination,” said Giuseppe Sersale, fund manager at Anthilia. Oil bounced back after plunging nearly 10% over the previous two sessions, buoyed by supply concerns as the European Union works on gaining support for a ban on Russian oil and as major producers warned they may struggle to fill the gap when demand improves.

Brent rose 2.6% to $105.10 a barrel and U.S. crude rose 2.5% to $102.3 Spot gold rose around 0.7% steady at $1850.2 an ounce.

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