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LONDON (Reuters) – It was another day on inflation patrol for investors on Wednesday as stickier-than-expected U.S. data nudged stocks sideways and the dollar up, while a slowdown in Britain’s rate sent the pound sliding.
Wall Street looked set for an early dip after the previous day’s 6.4% U.S. CPI reading, but Europe’s main bourses were moving modestly higher after the equivalent UK inflation rate eased to 10.1% from 10.5%.
That pushed the pound back toward $1.20 versus the dollar and saw the biggest drop in 10-year UK Gilt yields in almost two weeks, albeit after two sizable rises in bond yields globally in the last few sessions. [GVD/EUR]
Oil prices eased again too [O/R], as did banks as a string of problems at one of Britain’s biggest lenders, Barclays (LON:BARC), slashed 10% off the value of its shares.
Gucci owner Kering (EPA:PRTP) fell as much as 2% after its results, while an 800 million euro buyback and dividend hike lifted Europe’s largest food retailer Carrefour (EPA:CARR) up 8% and there were gains of 0.8%-1% in the tech, chemicals and autos sectors. (EU)
“Today’s UK inflation data will likely be met with sighs of relief,” Hugh Gimber, a global market strategist at J.P. Morgan Asset Management, said referring to the Bank of England’s interest rate-setting committee.
Robust wage increase data this week showing the 12th consecutive month of stronger-than-anticipated growth demonstrated that inflationary pressures remain strong overall, however.
“We see interest rates of 4.5% as the minimum required to return inflation to target over the coming quarters,” Gimber added.
Despite Europe’s resilience, MSCI’s 47-country world share gauge was 0.2% in the red with S&P 500 futures markets pointing to Wall Street opening 0.3% lower later. [.N]
The focus there is likely to be on January retail sales figures, due at 8:30 a.m. ET, for clues on consumer spending amid worries of slowing economic growth and high inflation. A Reuters poll expects a 1.8% rise after a fall in December.
Tuesday’s headline U.S. consumer inflation reading came in at 6.4% year-on-year for January. That was higher than the 6.2% economists had expected and set off selling in the bond market and Fed funds futures as hopes that rates could be cut later this year dimmed.
Fed funds futures now imply a peak above 5.2% by mid-year and rates above 5% at year’s end.
Two-year Treasury yields, which rise when the price of the underlying bond falls, steadied at 4.59% in Europe after climbing to 4.61% overnight. That had also widened the premium or ‘inversion’ over 10-year yields – an unusual phenomenon that historically often signals an approaching recession.
GRAPHIC: Inflation surprise indexes (https://fingfx.thomsonreuters.com/gfx/mkt/egvbyadnopq/Pasted%20image%201676463382510.png)
SWIMMING IN OIL
Turkey’s stock index rose almost 10% as it reopened on Wednesday after a five-day closure following an earthquake that has claimed more than 40,000 lives there and neighbouring Syria.
Turkish authorities had introduced measures on Tuesday to support the market, including an incentive for firms to buy back their shares and another that encouraged pension funds to buy stocks.
MSCI’s broadest index of Asia-Pacific shares outside Japan ended down 1.5%, led by drops of around 1% in Australia and Hong Kong. Japan’s Nikkei share average sank 0.4%, reversing a small early gain. (T)
After their strong start to the year, global share markets look to have stalled and analysts are now wary of a retracement.
“If I combine this earlier (U.S.) Fed rhetoric trying to keep the rates higher for longer and the recent CPI number… then it seems likely that there should be some degree of moderation in the equity markets, both developed markets and Asian markets,” said Manishi Raychaudhuri, head of Asia Pacific equity research at BNP Paribas (OTC:BNPQY).
He said the dollar might also regain some strength over emerging market currencies, helped by the prospect of U.S. interest rates staying elevated.
The dollar was enjoying a six-week high of 133.66 Japanese yen and was up at $1.0699 versus the euro and 1% up on the pound.
It had a bumpier ride against other currencies following the CPI data, but seems to be over its January slide.
The Australian dollar dropped 1.3% to $0.689 USD even as central bank Governor Philip Lowe reiterated that Aussie interest rates would need to rise further.
Going in the other direction, China’s central bank ramped up its liquidity injections by rolling over maturing policy loans and adding more funds, while keeping the interest rate unchanged.
Oil prices fell, meanwhile, as traders worried about mounting supplies and the prospect of higher interest rates slowing the global economy and weakening demand.
U.S. crude stocks rose by a more-than-forecast 10.5 million barrels, according to market sources citing American Petroleum Institute (API) figures, ahead of official Energy Information Administration (EIA) data out at 1530 GMT.
Brent crude futures slid as much 1.3%, to $84.45 a barrel, while U.S. West Texas Intermediate (WTI) crude dropped 1.7% to $77.75 before recovering some ground.
Also putting downward pressure on crude was the U.S. announcement this week that it would sell 26 million barrels of oil from the nation’s strategic reserve, already at its lowest level in roughly four decades.
“Simply put, the U.S. is swimming in oil,” said Stephen Brennock of oil broker PVM.
(Additional reporting Xie Yu in Hong Kong and Alex Lawler in London; Editing by Kim Coghill and John Stonestreet)
