Global equities edge higher ahead of US inflation data

European stocks rose on Tuesday as global markets awaited US inflation data later in the session, which could provide an indication of whether global interest rates start to fall.

At 1.30pm, the MSCI World Equity index was up 0.1% at 668.26.

Asian stocks edged higher overnight, with the MSCI’s broadest index of Asia-Pacific shares outside Japan on course for a second straight day of gains.

The pan-European Stoxx 600 was up 0.32% and the FTSE 100 was down 0.41%.

The Israel-Hamas war turned traders risk-averse in October, but world stocks have recovered almost 5% so far this month as they bet that major central banks have ended a lengthy run of interest rate hikes.

US Federal Reserve chair Jerome Powell and other policymakers have said they are still not sure that interest rates are high enough to tame inflation.

US treasury yields edged lower, with the 10-year yield down 2 bps at 4.6142%. Eurozone government bond yields were also down, with the benchmark 10-year German yield at 2.696%.

Asked how long rates would have to remain at high levels to beat inflation, European Central Bank (ECB) president Christine Lagarde said in an interview at the weekend that no change should be expected in the “next couple of quarters”.

Wages in Britain grew slightly less quickly in the three months to September, official data on Tuesday show. Wages previously rose at a record pace, leaving the Bank of England on alert for inflation.

US consumer price inflation data for October is due at 1.30pm GMT.

“The bond market is driving more or less everything,” said Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management.

A higher inflation figure “might actually reverse the recent trend and push bond yields higher and perhaps add some pressure on equities and risk assets.”

“If we get a weaker print, a softer print, the rally that we’ve seen could extend,” he added.

The dollar index was down less than 0.1%, at 105.530, and the euro was up 0.2% at $1.0716.

The yen was stuck near its lowest level in three decades against the dollar, struggling to find a floor as the Bank of Japan’s ultra-easy monetary policy settings remained at odds with the prospect of higher-for-longer rates elsewhere.

The pair was around ¥151.675/$, a slight recovery from ¥151.92 on Monday.

“We expect the Bank of Japan to move very very gradually out of yield curve control and eventually out of negative rate policy, but this is unlikely to happen any time soon,” Pictet Wealth Management’s Ducrozet said.

In the meantime, the pair is more likely to be driven by anything that moves the dollar, Ducrozet added.

Reuters