A huge electric stock quotation board is seen inside a building in Tokyo, Japan, December 30, 2022. REUTERS/Issei Kato Acquire Licensing Rights
LONDON, Sept 12 (Reuters) – Global stocks steadied on Tuesday, losing some steam as the dollar recouped some of its overnight losses a day ahead of crucial U.S. inflation data that could influence when or whether the Federal Reserve raises rates further.
Traders still had plenty to watch on Tuesday ahead of the key U.S. numbers and Thursday’s European Central Bank meeting, after UK labour market data helped reinforce the view that the Bank of England’s expected rate rise next week might be its last.
Europe’s STOXX 600 index gave up early gains and slipped 0.2% (.STOXX), under pressure from a drop in shares of German software company SAP (SAPG.DE), which echoed the 10% premarket decline in shares of rival Oracle (ORCL.N) after the company issued a Q2 revenue forecast below analysts’ targets.
London’s FTSE 100 (.FTSE) was a standout performer, rising 0.3% after British jobs data lead to a softer pound and in turn make British stocks more attractive to investors overseas.
Britain’s labour market showed more signs of cooling in the three months through July, data showed on Tuesday, suggesting a weaker economy leading to slowing inflation, easing pressure on the Bank of England to raise rates much further.
“I think (the data) underscores the likelihood of just one more and then done for the Bank of England and more of a bull steepening in the gilt (British government bond) market while we have had bear flattening elsewhere where higher oil prices have dominated the narrative,” said Chris Scicluna, head of research at Daiwa Capital Markets.
Bond yields move inversely to prices and bull steepening refers to shorter dated rates falling faster than longer dated rates.
The two-year gilt yield fell by as much as 8 basis points earlier in the day, compared with a maximum drop of 6 bps in the 10-year yield. The two-year yield was last down 4 bps on the day at 5.04%.
Sterling was last down 0.3% at $1.2467, as was the euro , which traded at $1.0714, as the dollar resumed its rise across the board after a blip a day earlier on the back of moves in Asian currencies.
The yen on Monday recorded its largest one-day gain against the dollar in two months, after Bank of Japan Governor Kazuo Ueda said policymakers might have enough economic information by the year-end to determine that short-term rates will need to rise.
By early U.S. time on Tuesday, the dollar was up 0.2% against the yen at 146.91
China’s yuan also posted its largest daily rise in six months on Monday, after authorities vowed to correct one-way moves and Reuters reported the central bank had stepped up scrutiny of dollar buying.
Both, however, remain near their weakest levels of the year.
Also in Asia, investors in China drew some comfort from news that the country’s largest private property developer, Country Garden (2007.HK), has won approval from creditors to extend repayments on six onshore bonds by three years.
FED AND ECB
The week’s two big macroeconomic events, U.S. CPI and the European Central Bank meeting, are still to come however.
Markets are expecting the U.S. figures, due on Wednesday, to show annualised core inflation falling to 4.3% in August though the headline number is seen ticking up to 3.6%.
“A lower-than-expected print may slow the U.S. dollar’s rise while (a) higher print could potentially un-nerve risk sentiments as it would reinforce market expectations for further rate hikes, and this could fuel dollar strength,” said OCBC strategist Christopher Wong.
Interest-rate futures markets are pricing about a 45% chance of another U.S. rate hike by year’s end.
Investors’ appetite for risk is also to be tested this week when British chip designer Arm Holdings lists in New York with a goal of raising almost $5 billion.
The ECB meanwhile meets on Thursday. Markets think it is more likely the central bank will leave rates unchanged than hike by 25 bps, though the latter remains firmly on the table.
In commodity markets, Brent crude futures were up 0.45% at $91.05 a barrel. Gold hung on at $1,920 an ounce.
Editing by Lincoln Feast, Simon Cameron-Moore, Susan Fenton and Nick Macfie
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