Stocks Rise Ahead of US CPI Data; Pound Weakens: Markets Wrap

(Bloomberg) — European stocks tracked an advance in Asian peers on bets that Wednesday’s US consumer price report will allow the Federal Reserve to start reducing interest rates in September.

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UBS Group AG led gains European financial services stocks after the bank’s second-quarter profit beat estimates, thanks to strong client inflows and investment banking revenue. Miners dropped as iron ore slumped to the lowest since May 2023 amid worries over demand in China, with Rio Tinto Group sliding 1.8%.

The MSCI benchmark for Asian stocks climbed for a fourth session to recover further from last week’s rout. US equity contracts were steady following Tuesday’s 1.7% rally in the S&P 500, fueled by cooler-than-forecast US producer price data.

The easing of price pressures in the US has bolstered confidence that officials can start lowering borrowing costs and refocus on supporting the labor market. Forecasters expect a modest 0.2% increase in both the consumer price index and the core gauge excluding food and energy — which would mark the smallest three-month increase for the latter since early 2021.

“Global markets seem to be sounding the all-clear signal following the recession scare last week,” said Jun Rong Yeap, a strategist at IG Asia Pte. “Further inflation progress in US producer prices, which may be a precursor for more easing in the consumer prices as well, has offered additional legs to the risk rally.”

The pound fell against the dollar after UK inflation data came in below forecasts. The Consumer Prices Index rose 2.2% in July after a 2% gain in each of the two previous months. Economists had expected a reading of 2.3%. Traders fully priced a half-point of further Bank of England rate cuts by year-end for the first time since Aug. 5.

UK government bonds jumped following the inflation print, while Treasuries were little changed after rising across the curve in the previous session. A Bloomberg gauge of the dollar steadied around a four-month low.

New Zealand’s 10-year benchmark bond yields slumped as the central bank cut rates by 25 basis points, embarking on an easing cycle much sooner than previously indicated. The kiwi fell over 1% while local stocks rallied.

In Japan, the Nikkei fluctuated as traders digested news that Prime Minister Fumio Kishida won’t run for a second term as leader of the long-ruling Liberal Democratic Party in September. The yen steadied after earlier strengthening toward the 146-per-dollar mark.

Elsewhere in Asia, Chinese stocks fell following data that showed bank loans to the real economy contracted for the first time in 19 years. A gauge of Chinese tech companies in Hong Kong slid more than 1% ahead of earnings from Tencent Holdings Ltd. and its buyback plans.

“The Chinese internet giants reporting this week will be very important to see if consumption weakness in China weighs on margins and ROIs, and which sub-segment vertical such as gaming may be brighter spots,” said Britney Lam, head of equities-long/short at Magellan Investments Holding Ltd. “Valuation is attractive but earnings momentum is key.”

On Wall Street overnight, the S&P 500 notched its biggest four-day rally this year, pushing the gauge closer to testing a key technical level. The Nasdaq 100 climbed 2.5%. Traders’ favorite volatility gauge — the VIX — tumbled to around 18. Swap traders priced in an about 40 basis-point Fed cut in September and a total rate reduction of over 105 basis points for 2024.

Oil rose, rebounding from losses on Tuesday, as an industry report pointed to a sizable drop in US crude stockpiles and tensions simmered in the Middle East. The weakness in iron ore deepened after the world’s biggest steel producer warned that China’s steel industry is facing a crisis more serious than the downturns of 2008 and 2015, likening conditions to a “severe winter.”

Key events this week:

• Eurozone GDP, industrial production, Wednesday

• US CPI, Wednesday

• China home prices, retail sales, industrial production, Thursday

• US initial jobless claims, retail sales, industrial production, Thursday

• Fed’s Alberto Musalem and Patrick Harker speak, Thursday

• US housing starts, University of Michigan consumer sentiment, Friday

• Fed’s Austan Goolsbee speaks, Friday

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 rose 0.4% as of 8:42 a.m. London time

• S&P 500 futures were unchanged

• Nasdaq 100 futures were little changed

• Futures on the Dow Jones Industrial Average were little changed

• The MSCI Asia Pacific Index rose 0.7%

• The MSCI Emerging Markets Index rose 0.5%

Currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro rose 0.1% to $1.1005

• The Japanese yen fell 0.3% to 147.23 per dollar

• The offshore yuan was little changed at 7.1469 per dollar

• The British pound fell 0.1% to $1.2843

Cryptocurrencies

• Bitcoin rose 0.4% to $60,858.01

• Ether rose 0.9% to $2,724.08

Bonds

• The yield on 10-year Treasuries advanced one basis point to 3.85%

• Germany’s 10-year yield advanced one basis point to 2.20%

• Britain’s 10-year yield declined three basis points to 3.86%

Commodities

• Brent crude rose 0.4% to $80.99 a barrel

• Spot gold rose 0.2% to $2,469.96 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Winnie Hsu and Michael Msika.

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