Business Maverick

Business Maverick

Stocks rise, dollar slips ahead of inflation data: markets wrap

Stocks rise, dollar slips ahead of inflation data: markets wrap
A worker walks past Exchange Square displaying the numbers on the Hong Kong stock exchange in Hong Kong on 10 March 2022. (Photo: Dale De La Rey/AFP/Getty Images)

Asian stocks inched higher on Tuesday as the dollar slipped ahead of a swath of inflation prints that are expected to influence the direction of global monetary policy.

The MSCI AC Asia Pacific index rose, with stocks in Hong Kong leading gains in Asia. Markets in Japan and Australia were slightly down. US and UK markets were closed on Monday and European shares edged higher in thin trading. S&P 500 futures rose.

Chinese property shares advanced after the financial hub of Shanghai lowered down-payment ratios and the minimum mortgage threshold, as bigger Chinese cities followed through on the central government’s aid for the property sector. Tech stocks in China gained as major Chinese state banks said they will invest a combined 114 billion yuan ($15.7-billion) into a semiconductor investment fund.

The dollar retreated for a third day and was down against all G10 peers, while the 10-year Treasury yield remained stable.

Traders will this week be studying fresh inflation data from Australia to Japan, the euro region and the US. Bank of Japan Governor Kazuo Ueda and his deputy indicated there is scope for gradually raising interest rates now that the nation has shifted away from an inflation norm of 0%. Japan’s April producer prices beat estimates, jumping 2.8% from a year earlier.

“Things will pick up tonight when the US opens, and then I suspect the next few days, all else being equal, will be driven by end-of-month flows and then that crucial PCE Index release,” said Kyle Rodda, a senior market analyst at Capital.Com Inc. “All we are seeing is the usual tidal currents in the market when there’s nothing much going on and no one is really around.”

The Federal Reserve’s favourite measure of underlying inflation is expected to show modest relief when it lands on Friday. Chair Jerome Powell has stressed the need for more evidence that inflation is on a path to the 2% goal before easing policy. John Williams, Lisa Cook, Neel Kashkari and Lorie Logan are among US central bankers due to speak this week. 

In commodities, gold steadied as traders awaited US inflation data. Oil advanced as focus shifted to an OPEC+ supply meeting on Sunday and US demand at the start of the summer driving season. Copper resumed its rally as China steps up efforts to rescue its property market and as the dollar weakened. Wheat briefly touched the highest level in more than nine months on concerns over shrinking stockpiles.

With US and UK markets closed Monday, European stocks took the spotlight, with carmakers and utilities leading a modest advance in the Stoxx Europe 600 index. Turnover was less than half the 20-day average for the time of day. 

The ECB shouldn’t rule out lowering borrowing costs at both its June and July meetings, Governing Council member Francois Villeroy de Galhau said, pushing back against fellow monetary officials uncomfortable with the idea of consecutive cuts. Chief Economist Philip Lane told the Financial Times the central bank will have to keep policy restrictive through 2024, even with the prospect of an interest-rate cut next month.

While an ECB rate cut in June has been widely expected, subsequent steps are less clear given uncertainty over wage growth and factors like the fighting in the Middle East. Data this week may show headline inflation in the euro region ticked up in May. 

The “T+1” rule that has the potential to cause trouble for overseas investors will come into effect when traders return from the long weekend — making US equities settle in one day rather than two.

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