Stocks Steady as Attention Focuses on US Inflation: Markets Wrap

(Bloomberg) — Stocks and bonds were steady on Wednesday amid caution ahead of US inflation data that will shape investor expectations for further Federal Reserve interest-rate hikes.

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Europe’s Stoxx 600 erased an early drop, with insurance stocks outperforming and consumer products the biggest laggards. US equity futures pared declines, following a retreat in the S&P 500 for a fourth session after Micron Technology Inc. became the latest chipmaker to warn about slowing demand, fanning economic concerns.

The two-year Treasury rate exceeds the 10-year by almost 50 basis points. The inversion, around the deepest since 2000, is viewed as a sign of a looming recession under the Fed’s monetary-tightening campaign to curb inflation.

A report Wednesday is expected to show headline US consumer-price inflation cooled but stayed elevated in July, while the core reading may have quickened on an annual basis. How the figures affect views on Fed tightening will be key for risk sentiment.

“Today’s inflation number could set the tone for the markets for the rest of the month,” said Craig Erlam, a senior market analyst at Oanda. “A lower-than-expected number could be a major tailwind for the markets while anything around or above the June reading could trigger a big risk reversal in the markets as the debate shifts to 75 or 100 basis points, with 50 left in the rearview mirror.”

A dollar gauge was steady, while crude oil dipped below $90 a barrel, and both gold and Bitcoin fell.

Federal Reserve Bank of St. Louis President James Bullard said the US central bank will be prepared to hold interest rates “higher for longer” should inflation continue to surprise to the upside.

The Fed “will be driving those short rates higher,” said Gary Schlossberg, a global strategist for Wells Fargo Investment Institute, on Bloomberg Television. “We will be seeing a deepening inversion and a full inversion of the Treasury yield curve.”

A gauge of Asian equities headed for a three-week low, with technology stocks the biggest drag. Chinese shares dropped as inflation accelerated in July to the highest level in two years.

Elsewhere, Elon Musk sold $6.9 billion of shares in Tesla Inc., the billionaire’s biggest sale on record, saying he needed cash in case he is forced to go ahead with his aborted deal to buy Twitter Inc.

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What to watch this week:

  • US CPI data, Wednesday

  • Chicago Fed President Charles Evans and his Minneapolis counterpart Neel Kashkari due to speak, Wednesday

  • US PPI, initial jobless claims, Thursday

  • San Francisco Fed President Mary Daly is interviewed on Bloomberg Television, Thursday

  • Euro-area industrial production, Friday

  • US University of Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

  • The Stoxx Europe 600 was little changed as of 8:51 a.m. London time

  • Futures on the S&P 500 were little changed

  • Futures on the Nasdaq 100 were little changed

  • Futures on the Dow Jones Industrial Average were little changed

  • The MSCI Asia Pacific Index fell 0.9%

  • The MSCI Emerging Markets Index fell 1.1%

Currencies

  • The Bloomberg Dollar Spot Index was little changed

  • The euro was little changed at $1.0214

  • The Japanese yen was little changed at 134.93 per dollar

  • The offshore yuan fell 0.1% to 6.7620 per dollar

  • The British pound was little changed at $1.2086

Bonds

  • The yield on 10-year Treasuries declined one basis point to 2.77%

  • Germany’s 10-year yield declined two basis points to 0.90%

  • Britain’s 10-year yield declined two basis points to 1.95%

Commodities

  • Brent crude fell 1% to $95.37 a barrel

  • Spot gold fell 0.2% to $1,791.40 an ounce

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