Global stocks lose ground after jump in US inflation

London/Shanghai — The dollar hit three-month highs against the euro and world stocks slipped on Wednesday after a jump in US inflation fuelled the expectation of a quicker end to Federal Reserve stimulus, while a drop in China’s crude imports dampened oil.

The US consumer price index (CPI) rose 0.9% in June, data showed on Tuesday, above market expectations and the largest gain since June 2008.

Investors are also watching the semi-annual testimony of Fed chair Jerome Powell to Congress on Wednesday and Thursday for more clues on whether the Fed will take more aggressive steps to halt rising inflation.

“This isn’t surprising that the market is concerned about inflation, our view is still that most of it is transitory,” said Seema Shah, chief strategist at Principal Global Investors, adding that she did not expect the Fed to start tapering its bond-buying programme until early next year.

“The Fed speakers will be out in force today reiterating their patience with inflation to reassure markets.”

MSCI’s broadest gauge of global stocks dipped 0.15% after hitting a record high on Tuesday on investor bets of a global economic recovery just weak enough to permit central banks to retain a dovish policy.

European stocks fell 0.34% after hitting record peaks on Tuesday, with Germany down 0.24% and France off 0.15%.

Britain’s FTSE 100 dropped 0.5%, after UK inflation hit 2.5% in June, its highest in nearly three years.

MSCI’s broadest index of Asia-Pacific shares outside Japan dipped 0.22%, as Chinese blue chips fell 1.15%, Hong Kong’s Hang Seng slipped 0.7% and Seoul’s Kospi lost 0.2%. Japan's Nikkei fell 0.38%.

S&P futures were steady after the S&P 500 index lost 0.35% on Tuesday. The Dow Jones Industrial Average fell 0.31% and the Nasdaq Composite dropped 0.38% overnight.

President Joe Biden’s administration is continuing to push for fiscal stimulus to boost the US economy.

Democrats on the US Senate budget committee late on Tuesday reached an agreement on a $3.5-trillion infrastructure investment plan that they aim to include in a budget resolution to be debated this summer.

The New Zealand dollar shot up 1% as markets bet that a New Zealand rate hike is imminent after the central bank on Wednesday unexpectedly announced it would end its bond purchase programme from next week.

The Bank of Canada is also expected to taper weekly asset purchases at its meeting later on Wednesday, according to a Reuters poll.

The euro rose 0.17% to $1.1793 after the dollar earlier touched its three-month high against the single currency.

The dollar index, which tracks the greenback against a basket of currencies of other major trading partners, nudged down 0.16% to 92.643 after rising as high as 92.832 — just below the 92.844 level reached last week for the first time since April 5.

The dollar dipped 0.11% against the yen to ¥110.50.

The pound rose 0.28% against the dollar after the high UK inflation data.

“An interest rate rise is not yet around the corner, but it is steadily becoming a less distant prospect, and this is injecting momentum into the pound,” said Ulas Akincilar, head of trading at Infinox.

US bond yields pulled back after jumping across the curve on Tuesday on the US inflation data.

The benchmark 10-year yield slipped to 1.4098% from a close of 1.415% on Tuesday.

German 10-year bund yields hit a one-week high at -0.27%, up 2.5 basis points, ahead of a €10bn auction later in the session.

Oil steadied after data showed China’s first-half crude imports dropped 3% from January to June from a year earlier.

Prices had surged more than 2% on Tuesday after the International Energy Agency said the market should expect tighter supply due to disagreements among major producers.

US crude was steady at $76.52 a barrel and global benchmark Brent crude was flat at $76.53 a barrel.

Spot gold rose 0.24% to $1,812.50/oz as the dollar and US yields dipped.

Reuters