LDN - Business

Stocks edge up ahead of US inflation test, yen slips

[March 12, 2024] By Amanda Cooper

LONDON (Reuters) - Global shares edged up on Tuesday ahead of U.S. inflation data that could confirm how soon the Federal Reserve might cut rates, while the yen tumbled after Japanese officials dampened expectations of an imminent policy switch by the central bank.

Gold held just below record highs and the dollar edged up as traders awaited the U.S. consumer price index later on.

The MSCI All-World index rose 0.1%, encouraged by gains on Wall Street overnight and by a pickup in technology stocks in Asia.

Investors are pricing in the prospect of at least three interest rate cuts by the Fed this year, most likely starting in June. Tuesday's CPI data have the potential to shake up those expectations, analysts said.

Deutsche Bank strategist Jim Reid said they expected CPI to have risen 0.4% on a monthly basis, which would keep the annual rate at 3.1%, while the core rate is expected to have risen 0.3%.

"If that’s realised, it would also be the fourth consecutive month that core CPI has come in at +0.3% or +0.4%, which is still a bit too fast for the Fed to be comfortable," he said.

U.S. stock index futures were up 0.2-0.4%, suggesting a pickup at the opening bell later, while in Europe, the STOXX 600 rose 0.4%.

A stronger majority of economists in the latest Reuters poll also expect the Fed to start cutting rates in June. The survey showed more respondents expected any change in Fed policymakers' rate projections at the March meeting to signal fewer cuts overall this year, not more.

The yield on 10-year Treasury notes eased a bit to 4.094%, while the dollar index, which measures the performance of the U.S. currency against six others, rose 0.1% to 102.9, having hit a roughly two-month low of 102.33 last week.

YEN BACK UNDER PRESSURE

In the currency market, the yen fell against the dollar after Bank of Japan Governor Kazuo Ueda on Tuesday offered a slightly bleaker assessment of the country's economy than he had in January.

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The German share price index DAX graph is pictured at the stock exchange on the day of the RENK IPO in Frankfurt, Germany, February 7, 2024. REUTERS/Staff/File Photo

This doused some of the optimism that the central bank will ditch its negative interest rate policy when it meets this month, which weighed on the Japanese currency, allowing the dollar to rise 0.3% to 147.34 yen.

A growing number of BOJ policymakers are warming to the idea of ending negative interest rates this month, four sources familiar with the central bank's thinking told Reuters last week.

The changing expectations have helped the yen perk up over the past week and sent the Nikkei beyond the record peak struck last week.

Futures now imply a 47% chance the BOJ will shift rates to zero at its meeting on March 18-19, though some still think it might wait until its April 26 meeting.

"The question for investors is whether the BOJ will stop at ending negative rates, or start a tightening cycle. We think the former," Frank Benzimra, head of Asia equity strategy at SocGen, told the Reuters Global Markets Forum.

Meanwhile sterling eased, falling 0.3% to $1.278 after data showed UK wage growth cooled a little more than expected last month, putting a bit more pressure on the Bank of England to cut rates sooner rather than later.

Elsewhere, Chinese stocks rose, with Hong Kong's Hang Seng Index up 2.6%, led by the tech sector, while the blue-chip CSI300 index inched up 0.23%.

Spot gold dipped 0.3% to $2,176 an ounce, still in sight of last week's record high at $2,194.99.

(Additional reporting by Ankur Banerjee in Singapore and Anisha Sircar in Bangalore; Editing by Jamie Freed, Sam Holmes and Jan Harvey)

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