© Reuters. FILE PHOTO: Vegetables at a produce store at Reading Terminal Market after inflation hit a 40-year high in January, in Philadelphia, Pennsylvania, US, February 19, 2022. REUTERS/Hannah Pierre
A look at the coming day in the US and global markets from Mike Dolan
Global markets took a positive turn to another important US inflation report later on Wednesday, which sent the dollar to a two-month low and led to a rally in the yen and gains in the pound.
It is not hard to see the importance of the US monthly consumer price report to the thinking of the Federal Reserve and the entire US interest rate complex. For now, futures are confident of at least a quarter-point hike from the Fed this month, but still see less than a 50-50 chance of another move by the end of the year.
The June CPI reading should be an indication of whether the consensus forecast for an almost full percentage point drop in the core inflation rate to a two-year low of just 3.1% is confirmed. Perhaps most important for the Fed is how far the higher “core” inflation rate has now fallen – and that drop is expected to be a more modest 0.3 point to 5.0%.
However, encouraged by a host of other positive signs of inflation this week, US markets are relatively buoyant as the release approaches and still feel the Fed’s rate hike is near.
US stocks rose for a second straight day on Tuesday and futures were positive ahead of the day’s open – with more signs of an alternation in the performance of small-cap stocks against the huge tech sector, while banks advanced ahead of second-quarter earnings later. this week.
Fed futures haven’t changed much, but Treasury yields have continued to retreat from last week’s highs and volatility there has eased a bit – with the focus on the 10-year Treasury auction later in the session.
But the dollar’s continued decline has been most notable.
Along with thoughts of a “Fed Peak”, speculation seems to be growing again that the BoJ will gradually tone down its ultra-loose stance on monetary policy over the coming months. The dollar/yen exchange rate, which has now fallen nearly 4% from its mid-year highs, has fallen to its lowest level in nearly a month.
Fueled by strong expectations that the Bank of England will raise interest rates much higher than the Federal Reserve, in order to rein in Britain’s external inflation problem, the pound hit a 15-month high on Wednesday before rebounding briefly. UK banking stocks were pushed higher by the interest rate presentation and a relatively clean document from Wednesday’s Financial Stability Report from the Bank of England.
Other central banks gave some applause.
The Reserve Bank of New Zealand halted its long-running campaign to raise interest rates early on Tuesday. And although the Bank of Canada is expected to raise interest rates by another notch later in the day, the decision will be watched closely for indecision there as well.
Elsewhere, Asian stock exchanges were mixed. It fell amid the yen’s sharp gains. Shanghai stocks fell, but Hong Kong added more than 1% on the upbeat noise this month on technology sector regulation and upbeat credit data. European indices rose smartly.
The world of deals was revived as Microsoft (NASDAQ:) cleared major hurdles to its plan to buy video game maker Activision Blizzard (NASDAQ:) on Tuesday after a US judge liked the $69 billion deal and a British regulator suggested it could. Reconsider its opposition. Activision shares rose 10 percent, while Microsoft shares rose 64 cents to $332.47.
Events to watch later on Wednesday:
* US Consumer Price Report for June
* Bank of Canada policy decision
* The Federal Reserve issues the “Beige Book” of economic conditions
*Richmond Fed President Thomas Barkin, Atlanta Fed President Raphael Bostick, Minneapolis Fed President Neel Kashkari, and Cleveland Fed President Loretta Meester all speak.
* US President Joe Biden at the NATO summit in Vilnius
* The US Treasury sells 10-year bonds
(Writing by Mike Dolan, Editing by Nick McPhee, mike.dolan@thomsonreuters.com. Twitter: @reutersMikeD)