LDN - Business

Stocks fall, oil holds gains ahead of key US inflation data

[September 13, 2023] By Tom Wilson and Stella Qiu

LONDON/SYDNEY (Reuters) - Shares fell on Wednesday as markets braced for key U.S. inflation data, with a spike in oil prices fuelling anxiety that price pressures are proving more ingrained than hoped.

European stocks fell as much as 0.5% in early trading, with rate-sensitive tech stocks losing 0.8%.

The crucial U.S. Consumer Price Index (CPI) report, due at 1230 GMT, will shed light on the inflation outlook and provide some clarity over whether the Federal Reserve has finished raising rates.

While core CPI is seen cooling to 4.3% year-on-year in August from 4.7%, rising energy costs are forecast to keep headline inflation elevated at 3.6%. And the latest spike in oil prices to 10-month highs is unlikely to escape the Fed's attention.

"We are praying that the consensus will be right, which will show that inflation is moderating," said Robert Alster, chief investment officer at Close Brothers Asset Management

"The real risk here is that it doesn't show that ... then you'll get quite severe markets movements this afternoon."

The euro, meanwhile, was supported by a hawkish shift in expectations for the European Central Bank on Thursday, with bets now favouring a hike, after a Reuters report that the ECB expects inflation will stay above 3% next year in its updated forecasts.

The MSCI world equity index, which tracks shares in 47 countries, was steady.

Wall Street futures gauges pointed to slim losses. The S&P 500 fell 0.6% overnight, with the Nasdaq losing 1%.

Fuelling worries over persistent inflation were oil prices, which firmed after hitting a 10-month peak a day earlier.

Benchmark Brent futures edged higher by 0.3% to $92.38 a barrel, while U.S. West Texas Intermediate (WTI) crude climbed 0.4%, to $89.24 a barrel.

Treasury yields also climbed on Wednesday, with the two-year note touching 5.0263%, compared with a U.S. close of 5.005%. Ten-year yields held at 4.2842%, up from the close of 4.264%.

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A woman walks past a man examining an electronic board showing Japan's Nikkei average and stock quotations outside a brokerage, in Tokyo, Japan, March 20, 2023. REUTERS/Androniki Christodoulou/File Photo

Earlier in Asia, MSCI's broadest index of Asia-Pacific shares outside Japan slipped 0.3%.

ECB HIKE BETS

The euro was down 0.1% at $1.074, after nearing one-week highs on the Reuters story which was published late on Tuesday.

Markets have moved to favour a rate hike from the ECB on Thursday with a 75% probability, up from less than 50% last week.

"The leak raises the possibility of a hawkish hike which would be much more supportive for the EUR," said Steve Englander, global head of G10 FX research at Standard Chartered, referring to the Reuters report.

"Our baseline view is that the ECB will signal a hawkish hold and be deterred by soft growth from further hikes... We think it is a close call."

The U.S. dollar index, which measures the greenback against a basket of other currencies, was steady at 104.61, after slipping to a one-week low on Monday and clocking its largest daily fall in two months.

The dollar recovered some of its recent losses against the yen, up 0.2% to 147.35 yen after comments from Japan's top central banker on a possible early exit from its negative interest rate policy sent the Japanese currency soaring. [FRX/]

Gold, seen as a safe haven, was steady at $1,911.30 per ounce.

(Reporting by Tom Wilson in London and Stella Qiu in Sydney; Editing by Shri Navaratnam and Christina Fincher)

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