(Bloomberg) — European shares look set to follow the progress of Asian peers on expectations that the upcoming U.S. consumer price report will allow the Federal Reserve to start easing in September.
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Euro Stoxx 50 futures rose 0.3%, while trading in US equity contracts was little changed. The MSCI benchmark for Asian shares climbed for a fourth session to further recover from last week’s rout. The gains came after the U.S. producer price index rose less than expected, helping to fuel a 1.7% rally in the S&P 500.
The easing of price pressures in the US has boosted confidence that officials can cut borrowing costs and refocus on supporting the labor market. Forecasters expect a modest rise of 0.2% in both the consumer price index and the core indicator excluding food and energy in the data due on Wednesday – which would mark the smallest three-month increase for the latter since early 2021.
“Global markets seem to be giving the clear signal after last week’s recession fears,” said Jun Rong Yeap, strategist at IG Asia Pte. “Further inflationary progress in US producer prices, which may also herald further easing in consumer prices, has provided additional support to the risk rally.”
The pound fell against the dollar after British inflation figures came in below expectations. The consumer price index rose 2.2% in July, after rising 2% in each of the previous two months, the Office for National Statistics said on Wednesday. Economists had expected a rise of 2.3%, while the Bank of England predicted a rise of 2.4%.
Ten-year government bond yields in New Zealand fell after the central bank cut rates by 25 basis points, starting an easing cycle much earlier than previously indicated. The kiwi fell more than 1% while local shares rose.
Treasuries are little changed after rising across the curve in the previous session, with positioning data showing traders remain bullish. A Bloomberg gauge of the dollar held steady near a four-month low.
The recovery in risk sentiment and dollar weakness supported Asian currencies. The Indonesian rupiah gained as much as 1%, while the Singapore dollar hovered around this year’s high.
In Japan, the Nikkei fluctuated as traders digested news that Prime Minister Fumio Kishida will not run for a second term as leader of the long-ruling Liberal Democratic Party in September. The yen remained stable after earlier strengthening towards the 146 per dollar mark.
Chinese profits
Elsewhere in Asia, Chinese shares fell after data showed bank loans to the real economy shrank for the first time in 19 years. A gauge for Chinese technology companies in Hong Kong fell more than 1% ahead of Tencent Holdings Ltd.’s profits. and its buyback plans.
“The Chinese internet giants reporting this week will be key to seeing whether consumption weakness in China is weighing on margins and ROIs, and which vertical sub-segments like gaming may be better places,” said Britney Lam, head of equity long/short at Magellan Investments Holding Ltd. “The valuation is attractive, but the earnings momentum is crucial.”
Overnight, the S&P 500 had its biggest four-day rally this year. The Nasdaq 100 climbed 2.5%.
Wall Street’s favorite volatility gauge – the VIX – plummeted to around 18. Swap traders had priced in a Fed cut of around 40 basis points in September and a total rate cut of more than 105 basis points by 2024.
In the corporate world, UBS Group AG posted higher-than-expected profit in the second quarter, supporting Chief Executive Officer Sergio Ermotti’s efforts to return capital to shareholders and complete the integration of Credit Suisse.
Oil rose in trading in Asia, recovering from Tuesday’s losses, after an industry report pointed to a significant drop in US crude inventories and tensions in the Middle East simmered. Gold fell.
Main events this week:
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Eurozone GDP, industrial production, Wednesday
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US CPI, Wednesday
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House prices in China, retail sales, industrial production, Thursday
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US initial unemployment claims, retail sales, industrial production, Thursday
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Alberto Musalem and Patrick Harker of the Fed will speak on Thursday
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US housing market starts, consumer sentiment from University of Michigan, Friday
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Fed CEO Austan Goolsbee speaks Friday
Some of the major moves in the markets:
Stocks
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Futures on the S&P 500 were little changed at 7:19 a.m. London time
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Nasdaq 100 futures were little changed
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Futures on the Dow Jones Industrial Average were little changed
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The MSCI Asia Pacific Index rose 0.6%
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The MSCI Emerging Markets Index rose 0.3%
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro was little changed at $1.0990
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The Japanese yen fell 0.1% to 147.00 per dollar
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The offshore yuan was little changed at 7.1499 per dollar
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The British pound fell 0.2% to $1.2833
Cryptocurrencies
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Bitcoin rose 0.3% to $60,752.46
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Ether rose 1.2% to $2,732.59
Bonds
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The yield on 10-year government bonds was little changed at 3.85%
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The German ten-year yield fell by four basis points to 2.19%
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The British ten-year yield fell by three basis points to 3.89%
Raw materials
This story was produced with the help of Bloomberg Automation.
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