US stocks drift higher ahead of inflation data

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Wall Street stocks inched higher on Tuesday, ahead of a much-anticipated inflation reading that investors will scrutinise for clues about the future path of US interest rate rises.

The benchmark S&P 500 was up 0.4 per cent in mid-afternoon trading, while the technology-heavy Nasdaq Composite was 0.2 per cent higher.

Those moves in equity markets came as traders looked ahead to fresh consumer price index data due on Wednesday, with economists polled by Reuters forecasting a year-on-year inflation rate of 3.1 per cent for June — down from 4 per cent in May.

The muted moves also came as investors contemplated comments on Monday from central bank officials, including Atlanta Federal Reserve president Raphael Bostic suggesting that inflation could return to target without raising rates further, and San Francisco Fed president Mary Daly saying that the Fed was nearing “the last part” of its cycle.

However, both officials are regarded as “doves” by investors, known for having recently supported relatively looser monetary policy prescriptions than some of their colleagues at the US central bank.

In government bond markets, the policy sensitive two-year Treasury yield rose 0.03 percentage points to 4.89 per cent.

The 10-year yield slipped 0.02 percentage points to 3.98 per cent, perpetuating the “inverted yield curve” phenomenon were shorter-term borrowing costs exceed longer-term yields — historically seen as a harbinger of recession.

In European equities, the region-wide Stoxx 600 gained 0.7 per cent, while France’s Cac 40 was helped higher by luxury goods groups and real estate stocks, rising 1.1 per cent. Germany’s Dax added 0.7 per cent.

London’s FTSE 100 closed 0.1 per cent higher after data showed UK wage growth accelerated more than expected in the three months to May. 

Evidence of the labour market’s resilience to tighter monetary conditions meant “pressure on the [Bank of England’s Monetary Policy Committee] to continue increasing rates in August will be intense”, said Martin Beck, chief economic adviser to the EY Item Club, adding that a further rate rise in September was firmly on the cards.

James Smith, developed market economist at ING, said the BoE might feel forced to opt for a jumbo half-percentage point rise next month. “If there’s a sliver of good news for policymakers, it’s that there are further signs that the UK’s worker shortage crisis is becoming less acute.”

Sterling strengthened 0.5 per cent against the dollar, rising to a 15-month high of $1.2934.

Asian stocks made headway after Chinese officials on Monday said measures designed to support the property sector would be extended until the end of 2024. Hong Kong’s Hang Seng index added 1 per cent, China’s CSI 300 rose 0.7 per cent and South Korea’s Kospi climbed 1.7 per cent. Japan’s Topix fell 0.3 per cent, however.

Inflation and producer prices in the world’s second-biggest economy fell in June, suggesting China’s post-lockdown recovery was “brief at best and that its growth story is faltering”, according to analysts at Liberum.

Additional reporting by Mary McDougall in London

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