(Bloomberg) — U.S. stock futures pointed to a slight rebound from Tuesday's Wall Street decline triggered by hotter-than-expected U.S. inflation data that fueled bets that the Federal Reserve may not cut interest rates as soon as expected.
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Contracts on the S&P 500 rose 0.2% after the worst drop on an inflation day since September 2022, while contracts on the tech-heavy Nasdaq 100 rose 0.4%. The dollar stabilized, while Treasury yields regained some of the previous day's rise as traders trimmed their bets on an early Fed rate cut. US inflation numbers have erased the last vestiges of the global bond rally that began in December on hopes that the Fed has finally turned in favor of easing.
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There was better news on Wednesday for UK traders looking forward to policy easing by the Bank of England. Inflation in Britain came in lower than expected in January, with underlying price pressures not rising as much as markets and the Bank of England had feared. Sterling reversed previous gains after the data, while UK bonds rose.
The European Stoxx 600 index was flat as investors weighed the latest earnings news. Heineken NV fell 6.5% after warning that persistent inflation and economic concerns will impact beer demand in 2024. ABN Amro Bank NV rose after it revealed a new share buyback with the participation of the Dutch state, as part of its planned sale in the bank.
Most stocks in Asia fell, and stocks in South Korea, Japan and Australia also fell. Hong Kong indexes reversed early declines as trading resumed after the Lunar New Year holiday, with investors focused on what Beijing can do to stem the rout. Markets in China remain closed.
The yen rebounded slightly from its decline on Tuesday after Masato Kanda, Japan's top currency official, warned that the recent moves were rapid, and that authorities were prepared to take steps if necessary. His comments were reinforced by Finance Minister Shunichi Suzuki shortly after. The yield on 10-year Japanese government bonds rose to the highest level since December.
“The authorities’ statements likely put a cap on the dollar/yen rate today, but they were not strong enough to change the pair’s course,” said Yukio Ishizuki, chief currency strategist at Daiwa Securities. A slight decline in the dollar and a rebound in the yen leads to a halt in US Treasury yields in Asia and a decline in Japanese stocks.
The US CPI data came as a disappointment to investors after the recent decline in price pressures helped build expectations for interest rate cuts this year. The numbers also gave credence to the wait-and-see approach highlighted by Jerome Powell and a group of Fed spokesmen. Swap traders lowered their expectations for a Fed cut before July, while the stock market's “fear gauge” – the VIX – closed above 15 for the first time since November.
Swaps signaling the Fed's policy meetings – which through mid-January were fully priced into a May rate cut and 175 basis points of easing by the end of the year – were affected. The odds of a cut in May fell to about 32% from about 64% before the inflation data, with less than 90 basis points expected this year.
In the United Kingdom, consumer prices rose 4% in January from a year earlier, the same pace as in December, the Office for National Statistics said on Wednesday. The Bank of England and private economists expected the inflation rate to rise to 4.1%.
Inflation data has led to a re-pricing of the Bank of England's bets on interest rates, with traders resuming bets on three-quarter point cuts this year. Financial markets priced about 72 basis points of easing in 2024, compared to 61 basis points the day before.
Oil stabilized after a mixed US inventory report, while OPEC and the International Energy Agency offered contrasting forecasts for the global crude market. Gold was confined to a narrow range after falling below $2,000 an ounce for the first time in two months, while Bitcoin traded near the $50,000 level.
Main events this week:
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Eurozone industrial production, GDP, Wednesday
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Bank of England Governor Andrew Bailey will give evidence before the House of Lords Economic Affairs Committee on Wednesday
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Chicago Fed President Austin Goolsbee speaks on Wednesday
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Fed Deputy Chairman for Supervision Michael Barr speaks on Wednesday
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Japanese GDP, Industrial Production, Thursday
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US Empire Manufacturing, Initial Jobless Claims, Industrial Production, Retail Sales, Business Inventories, Thursday
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European Central Bank President Christine Lagarde speaks on Thursday
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Atlanta Fed President Rafael Bostic speaks Thursday
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Federal Reserve Governor Christopher Waller speaks Thursday
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European Central Bank chief economist Philip Lane speaks on Thursday
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US Housing Starts, Producer Price Index, Consumer Confidence from the University of Michigan, Friday
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San Francisco Federal Reserve Bank President Mary Daly speaks Friday
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Fed Deputy Chairman for Supervision Michael Barr speaks on Friday
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Isabel Schnabel, member of the Executive Board of the European Central Bank, speaks on Friday
Some key movements in the markets:
Stores
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The Stoxx Europe 600 Index was up 0.1% as of 8:12 a.m. London time
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S&P 500 futures rose 0.2%
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Nasdaq 100 futures rose 0.3%
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Dow Jones Industrial Average futures were little changed
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MSCI Asia Pacific Stock Index fell 0.5%
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MSCI Emerging Markets Index fell 0.2%
Currencies
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The Bloomberg Dollar Spot Index was little changed
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There was little change in the euro at $1.0701
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The Japanese yen rose 0.2 percent to 150.46 yen to the dollar
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There was little change in the yuan in external transactions at 7.2299 to the dollar
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The British pound fell 0.3 percent to $1.2552
Digital currencies
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Bitcoin rose 0.5% to $49,796.51
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Ethereum rose 0.7% to $2,652.49
Bonds
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The yield on the 10-year Treasury note fell three basis points to 4.29%.
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The yield on 10-year German bonds fell by three basis points to 2.37%.
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The yield on British 10-year bonds fell by eight basis points to 4.07%.
Goods
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There was little change in Brent crude
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Gold fell in spot transactions by 0.2 percent to $1,988.38 per ounce
This story was produced with assistance from Bloomberg Automation.
–With assistance from Yumi Tiso and Rob Verdonk.
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