LDN - Business

Stocks in check, dollar firm ahead of U.S. data

[May 27, 2021] By Tom Wilson

LONDON (Reuters) - World stocks were pinned down on Thursday as investors awaited U.S. data expected to offer clues on inflation, with further pressures widely seen as sparking a scaling back of central banks' giant stimulus packages.

The Euro STOXX 600 was flat, regaining slim losses, with French shares adding 0.5%. Indexes in Germany and London were down 0.3% and 0.1% respectively.

Losses of 0.3% in energy stocks were offset by 2% gains in the mining sector, while British bank HSBC hit a three-month high before slipping into the red after a move to exit U.S. retail banking to focus on Asia.

Wall Street futures gauges pointed to losses of around 0.2%.

In focus was U.S. gross domestic product and jobless claims numbers due later in the day. Investors also held back major bets before a U.S. personal consumption report set for Friday.

For many investors, rising inflation means the U.S. Federal Reserve will slowly but surely edge towards a discussion about tightening monetary policy.

"We still believe inflation will not be transient, but will persist - this is where I think we differ with central banks," said Jeremy Gatto, a portfolio manager at Unigestion.

The prospect lent support to the dollar, which has been heavily shorted of late.

Still, many market players shrugged off the risk of inflation and were bullish on equities, pointing to lower volatility in stock markets and economies reopening from lockdowns.

"The inflation debate has started to dissipate slightly, breakevens are falling, markets are pushing back Fed rate hikes (timings) again, the VIX is down and the reopening trades are doing OK," said Justin Onuekwusi, portfolio manager at Legal & General Investment Management.

"These are all reasons to be positive on equities,"

The MSCI world equity index, which tracks shares in 49 countries, was flat.

Earlier, MSCI's broadest index of Asia-Pacific shares outside Japan clawed back losses to trade flat, just below Wednesday's near-two week high.

TAPER TALK?

Global equities markets have been supported by a concerted effort from major central banks, which have pumped trillions of dollars into financial markets since last year while reiterating their lower-for-longer interest rate stance.

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A man wearing a protective face mask walks past the London Stock Exchange Group building in the City of London financial district, March 9, 2020. REUTERS/Toby Melville

U.S. Federal Reserve Vice Chair Richard Clarida said this week recent inflation pressures would "prove to be largely transitory", though he did add that policymakers will be at a point to begin discussing tapering in upcoming meetings.

The Fed Vice Chair for supervision, Randal Quarles, suggested that at some stage it will become important for the U.S. central bank to discuss plans to tighten its asset purchase programme.

With tapering on the agenda, the U.S. dollar index held on to Wednesday's gains and was steady at 89.958.

"Whether (central banks) are going to do something early in the very small way - just to indicate they are starting and do it very gradually - or do something bigger next year, they're the two really big scenarios for most investors," said Shaniel Ramjee, senior investment manager at Pictet Asset Management.

The Chinese yuan hit a three-year high as investors become more confident the Chinese central bank is comfortable with a stronger currency amid the country's economic recovery.

The euro edged up to $1.2206, after losing ground a day earlier after the European Central Bank's Executive Board Director Fabio Panetta said it was too early to taper its emergency bond buying programme.

The New Zealand dollar pushed to as high as $0.7306, below its Wednesday high hit after hints of a 2022 rate hike by the Reserve Bank of New Zealand.

In commodities, gold prices hovered near $1,900 per ounce, after hitting its highest since Jan. 8 at $1,912.50. [GOL/]

(Reporting by Tom Wilson in London and Swati Pandey in Sydney; additional reporting by Sujata Rao; Editing by Lincoln Feast, Shri Navaratnam & Giles Elgood)

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