People go through an electronic screen showing the price index of Japan’s Nikkei shares inside a conference room in Tokyo, Japan, June 14, 2022. REUTERS / Issei Kato
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- European equities down 1.3%, future S&P 500 0.8%
- The dollar exceeds 137 yen ahead of the U.S. CPI, inflation expectations
- Banks start the earnings season starting Thursday
SYDNEY / LONDON, July 11 (Reuters) – Shares fell on Monday as investors prepared for a US inflation report that could force another large rise in interest rates and the start of ‘a profit season in which profits will be under pressure.
The STOXX European stock index fell 1.3% (.STOXX), with S&P 500 futures 0.8% and Nasdaq futures 0.9%, as an optimistic payroll report of the US in June raised expectations of a 75 basis point rise in the Federal Reserve.
MSCI’s broader Asia-Pacific equities index outside Japan (.MIAPJ0000PUS) fell 1.8%, while Chinese blue chips (.CSI300) lost 1.9% after Shanghai discovered a case of COVID-19 involving a new subvariant, Omicron BA.5.2.1. Read more
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Bond yields and the rampant US dollar also rose, reaching a 24-year high against the yen.
Underlining the global nature of the inflation challenge, central banks in Canada and New Zealand are expected to tighten policy even further this week.
Although Wall Street made some gains last week, the market mood will be tested with the gains of JPMorgan and Morgan Stanley on Thursday, with Citigroup and Wells Fargo the next day.
Another hurdle will be Wednesday’s U.S. consumer price report, in which markets see headline inflation accelerate further to 8.8%, but a slight slowdown in the core measure to 5.8%. %.
An early reading on consumer inflation expectations this week will also get the Fed’s attention.
“An unexpected weakness in these releases will be required to dampen expectations of a 75 bp rate hike on July 27 from the Fed, which went from about 71 bp to 74 bp after the payroll report.” said Ray Attrill, head of currency strategy at NAB.
PARITY PARTY
Treasury yields rose about 10 basis points on the employment report and the ten-year high stood at 3.09% on Monday, above the recent low of 2.746%.
A counterfeit Fed combined with fears of recession, especially in Europe, has kept the dollar at a 20-year high against a basket of competitors. The dollar broke above 137.00 and reached its highest since 1998 at 137.28 yen, as the Bank of Japan remained favorable. Read more
Japan’s Conservative coalition government is expected to have increased its majority in the upper house elections on Sunday, two days after the assassination of former Prime Minister Shinzo Abe. Read more
The euro continued to struggle at $ 1.0122, after falling 2.4% last week to a two-decade low and a major setback to $ 1.0072.
“With little economic relief on the horizon for Europe and U.S. inflation data are likely to mark a new high for the year and keep the Fed rising aggressively, we believe risks remain skewed in favor of the dollar green, “said Jonas Goltermann, a senior. market economist at Capital Economics.
“In fact, we believe the EUR / USD rate will break parity in no time and may somehow pass through that level.”
Rising interest rates and the strength of the dollar have been a headache for unprofitable gold, which was hit at $ 1,739 an ounce, after falling for four weeks in a row.
Oil prices also lost about 4% last week, as demand concerns offset supply constraints.
China’s data to be released on Friday is likely to confirm that the world’s second-largest economy contracted sharply in the second quarter amid coronavirus blockages.
Brent was down $ 1.27 on a low of $ 105.76, while US crude was down $ 1.43 to $ 103.36 a barrel.
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Report by Wayne Cole and Lawrence White; Editing by Kenneth Maxwell, Bradley Perrett and Kirsten Donovan
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