London/Hong Kong (Reuters) – As investors waited for U.S. inflation data, which was due out the next day and was expected to give clues about how quickly the Federal Reserve might raise interest rates in the future, stocks and the currency fell a bit on Tuesday.
The stakes are high for the U.S. consumer price report for July, which will be released on Wednesday, after last week’s surprisingly strong U.S. jobs report bolstered anticipation of a swift interest rate hike to combat skyrocketing inflation.
The broader Euro STOXX 600 index declined 0.3% on Tuesday, following its highest session in over two weeks on Monday, while German equities declined 0.4%. On Monday, miners and automobiles were among the top gainers. On Tuesday, they led the declines.
Chief market analyst at CMC Markets, Michael Hewson, said, “Everyone will be looking at tomorrow’s U.S. inflation numbers to see if they show a drop in inflationary pressures.”
“Are we nearing the top, and will the CPI statistics for tomorrow reflect this?”
Wall Street ended Monday pretty much where it started. Last week’s strong employment numbers gave investors hope that the Federal Reserve will take action against inflation, while a sales warning from chipmaker Nvidia (NASDAQ:NVDA) reminded them that the U.S. economy is slowing.
Investors are currently waiting for the consumer price statistics to determine whether the Fed will loosen up on its war against inflation and create a healthier foundation for economic growth.
Futures on Wall Street indicated modest gains.
Traders were afraid of a surprise that could exert additional upward pressure on interest rates, so the dollar remained near its recent peak. The dollar was unchanged against a basket of currencies, standing at 106.30.
The MSCI world equity index, which monitors equities in 47 nations, decreased by 0.1%.
Earlier, MSCI’s broadest index of Asia-Pacific equities outside Japan was unchanged, having surrendered slight gains. The Nikkei fell by 0.95 percent because big companies’ quarterly profits were lower than expected, and predictions for the video game market were also lower than expected.
INFLATION EXPECTATIONS
On the price front, there were some promising indications for the Fed, as a survey conducted by the New York Fed on Monday revealed that consumer inflation expectations dropped significantly in July.
Analysts at Deutsche Bank (ETR:DBKGn) noted, “This will be music to the Fed’s ears, because if this trend continues, it indicates that the Fed may not need to be as aggressive in rising rates.”
One of their greatest concerns is that rising inflation expectations may lead to higher actual inflation, hence self-fulfilling.
Also on the minds of policymakers was inflation. This month’s Jackson Hole central banking symposium will likely be dominated by discussions of rising prices worldwide.
BoE Deputy Governor Dave Ramsden stated that the Bank of England will likely have to boost interest rates above their current 14-year high to combat inflationary forces that are finding a footing in the British economy.
Sterling maintained at $1.2084. It is down more than 10 percent against the dollar this year.
Concerns about a slowdown in global demand as central banks continue to tighten have contributed to a continuation of the recent decline in oil prices, which began in April 2020. [O/R]
U.S. crude fell $1 per barrel, or 0.7%, to $90.07 per barrel. Brent crude lost 0.8 percent to $95.91 a barrel.
