Stocks Stumble as Caution Reigns Ahead of US Inflation Data

LONDON–Shares slipped and the dollar hung off recent highs on Tuesday as investors eyed U.S. inflation data due a day later that will likely yield clues to any further aggressive Federal Reserve rate hikes.

The stakes for Wednesday’s July U.S. Consumer Prices Report are high after a surprisingly strong U.S. Jobs data report last week raised expectations of an aggressive interest rate hike to combat soaring inflation.

The broader Euro STOXX 600 fell 0.6 percent, after logging its best session in nearly two weeks on Monday, with German stocks down 0.7 percent. On Tuesday, declines were led by autos and miners, which had been the top gainers on Monday.

Wall Street futures showed modest gains.

” The focus of tomorrow’s U.S. Inflation numbers is to see if they show any signs of a slowing down of inflationary pressures,” stated Michael Hewson chief market analyst, CMC Markets.

” Are we close to the peak? Will tomorrow’s CPI numbers show that ?”

is on its way?

Wall Street was mostly flat on Monday after blockbuster job data last week confirmed expectations that the Federal Reserve would crack down against inflation. A revenue warning by chipmaker Nvidia also reminded investors about a slowing U.S. economy.

Investors await the latest consumer price data in order to determine if the Fed may ease its inflation battle and give the economy a more stable footing.

The dollar was also holding just below its previous peak, with traders cautious of any surprise that might put more downward pressure on the interest rates. Against a basket of currencies, the dollar was down a fraction at 106.14.

The MSCI world equity index, which tracks shares in 47 countries, fell 0.1 percent.

Earlier than that, MSCI’s largest index of Asia-Pacific shares other than Japan was flat after a few modest gains. Japan’s Nikkei slid 0. 95 percent, hit by weak quarterly earnings by corporate heavyweights and lowered expectations for the video game market.

Caution was also common in bond markets with steady eurozone yields. Germany’s 10-year yield, the benchmark for the bloc, was unchanged at 0. 90 percent.

Inflation Expectations

There were encouraging signs from the Fed regarding the price front. A New York Fed survey released Monday showed that consumers had lowered their inflation expectations in July.

People shop for produce at a store in Rosemead, Calif., on June 28, 2022. (Frederic J. Brown/AFP via Getty Images)

“That trend will be music to Fed’s ears since it could mean that Fed might not need to hike rates as aggressively if it continues,” Deutsche Bank analysts wrote.

” One of their biggest fears is that rising inflation expectations could lead to higher actual inflation .”

Rising prices around the world will likely be high on the agenda for the Jackson Hole central bank symposium this month.

The Bank of England (BoE) will probably have to raise interest rates further from their current 14-year high to tackle inflation pressures that are gaining a foothold in Britain’s economy, BoE Deputy Governor Dave Ramsden said.

Sterling was up 0.4 percent versus the dollar at $1.2128. It is down more than 10 percent this year versus the greenback.

Brent crude reversed earlier losses to rise $1 a barrel to $97. 41 after reports Russia had suspended oil exports via the southern leg of the Druzhba pipeline.

Oil prices had earlier continued their recent retreat after suffering their biggest weekly drop since April 2020 on worries about stalling global demand as central banks tighten policy.

By Tom Wilson