Stock markets rise ahead of US inflation data – Financial Times

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Thursday 08:05 GMT

What you need to know

  • Europe adds to momentum for stocks after rally in Asia and gains on Wall Street
  • Attention turns to US inflation data and its implications for the pace of rate rises
  • US Treasury yields slip in the run-up to the data as investors buy into the debt
  • Dollar slips in the run-up to the consumer price index, due at 1:30pm London time

Leading quote

“While one would expect a positive US consumer price index surprise to enact a similar market reaction to that seen after the strong wage growth print in the January US jobs report — which saw bond yields higher, stocks lower and the dollar up across the board — one could equally argue that higher inflation is merely confirmation of a late-cycle, and slowing, US economy,” says Viraj Patel, strategist at ING.

“For a structurally weak dollar, we would argue that sentiment over the slowing economy would far outweigh any subtle re-pricing of Federal Reserve tightening at this stage of the normalisation cycle.”

Hot topic

US inflation data have taken on more significance after last week’s sharp sell-off in riskier assets, which took stock indices down from record highs and came as investors re-drew their impressions for the pace at which the Federal Reserve will tighten rates.

In the run-up to the data, the dollar index is down a further 0.2 per cent at 89.518, its lowest reading in a week. It comes amid a feeling that even if the Fed can lift rates more quickly, other central banks have even more room to catch it up, particularly the European Central Bank.

The yield on US 10-year Treasuries is down 1.6 basis points at 2.8222 per cent, as investors move back into the debt. The yield’s run higher since it started the year at 2.43 per cent comes as investors have reduced their exposure to US government debt, on expectations that rising inflation will erode the returns from the bonds.

The implications of returning inflation also played a role in the sudden bout of volatility last week, but stock markets remain calmer as investors wait for the consumer price index.

Equities

There are solid gains for European bourses after a robust showing in Asia and three successive sessions of gains on Wall Street.

London’s FTSE 100 is up 0.7 per cent, with the Xetra Dax 30 up 0.8 per cent and the Europe-wide Stoxx 600 up 0.8 per cent.

Hong Kong’s Hang Seng index rose 0.7 per cent, having shed 9.5 per cent last week. South Korea’s Kospi Composite index rose 1.1 per cent, while Tokyo’s Topix shed 0.8 per cent, hit by the stronger yen. China’s CSI 300, tracking Shanghai- and Shenzhen-listed stocks, rose 0.8 per cent.

The moves came after the S&P 500 closed 0.3 per cent higher in New York. While still more than 7 per cent off its January 26 record high, the index continues to recover losses from last week, when it fell more than 10 per cent from its peak. Wall Street’s “fear gauge”, the Cboe Vix volatility index, moved back to around 25, closer to its historical average of 20.

Forex and fixed income

The yen hit its strongest intraday level against the dollar in 15 months, while the euro touched a five-session high.

Japan’s currency was up as much as 0.9 per cent against the greenback at ¥106.82, breaking the ¥107 marker for the first time since November 2016.

The euro touched $1.2392, up 0.3 per cent on the session.

Commodities

Brent crude oil, the international benchmark, found little support from the lower dollar, adding just 0.1 per cent at $62.79 a barrel.

Gold was up 0.3 per cent at $1,334 an ounce and bitcoin was trading near $8,700.

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