Global stocks firm as traders await inflation print

By Stella Q and Alun John

LONDON/SYDNEY (Reuters) – Global stocks hit an all-time high on Tuesday and U.S. Treasury yields were lower as investors awaited inflation data on both sides of the Atlantic later in the week.

Traders were watching for a shift to short settlement in US trade, but there were some key moves ahead of the US market opening.

Investors in US stocks and other securities will have to settle their transactions one business day after trading instead of two days from Tuesday.

Most asset classes, including commodities, have traded in the narrowest range in recent weeks, with key equity benchmarks near record-highs, European bond yields higher and the dollar gradually weaker against major peers.

US PCE inflation and CPI inflation data from major Eurozone economies this week are key things that will jolt markets out of their current thinking by affecting expectations of when major central banks will start cutting rates. Inflation data in the Eurozone was released on Wednesday, followed by PCE on Friday.

“If you want big moves, the next U.S. move has to get back to the idea of ​​an uptrend in the market’s mind,” said Kit Jucks, chief FX strategist at Societe Generale.

While he mentioned the dollar, there is a lot of correlation between assets at the moment.

“We were there at the end of the first quarter when we were bombarded with stronger-than-expected U.S. numbers, but it’s kind of melted away and we’re in no-man’s land,” Jucks said.

Markets are currently fully pricing in a 25 basis point Fed rate cut this year, most likely in September or November. They see a one-third chance of a second 25 bps cut by the end of the year.

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In the euro zone, the European Central Bank is certain to cut interest rates at its meeting next month, although markets are betting on only one more cut in December.

Of interest to policymakers, euro zone consumers lowered their inflation expectations last month, a new ECB survey showed on Tuesday.

MSCI’s world stock index was flat on the day, as was Europe’s broader STOXX 600, both hitting record-highs this month. Asian shares were broadly flat earlier in the day, with US S&P 500 futures up 0.3%.

Emerging markets are also paying attention, with Zambia likely to emerge from a long default after the country’s finance ministry said more than 90% of holders of its outstanding $3 billion international bonds have so far accepted its restructuring proposal.

Looking at Japan

Elsewhere, Tuesday’s data showed the Bank of Japan’s key gauge of core inflation all fell below its 2% target in April for the first time since August 2022, adding to uncertainty over the timing of the central bank’s next interest rate hike.

But investors focused more on comments from BOJ Deputy Governor Shinichi Uchida on Monday, who said the end of Japan’s battle against persistent deflation was in sight. Ten-year Japanese government bonds rose to 1.035% on Tuesday – the highest since April 2012. [JP/]

The yen traded at 156.95 to the dollar on the day, despite the Japanese currency’s weakest position in years against the pound and the Australian dollar.

Most FX pairs moved little through European trade, with the euro flat at $1.0868.

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The money treasury market has returned from the holiday and prices have recovered somewhat after taking a hit last week.

The two-year yield fell 2 basis points to 4.927% after rising 13 bps in the previous week, while the 10-year yield fell by the same amount to 4.453% after rising 5 bps.

Oil prices rose from the previous session. Brent futures rose to $83.16 a barrel. U.S. crude oil prices for July were at $78.92 a barrel, up 1.4% from Friday’s close after Monday’s U.S. holiday.

Spot gold was down 0.2% at $2343.3 an ounce.

(Reporting by Stella Qiu; Editing by Jacqueline Wong, Edwina Gibbs and Ana Nicolasi da Costa)

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