February 4, 2023

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Stocks hold on to gains ahead of the US inflation test

  • global stocks up an inch; The dollar is near its lowest level in 7 months
  • The Yen rose as a result of the Bank of Japan’s Policy Impact Test report
  • All eyes are on the US CPI at 1330 GMT
  • Treasuries and Eurozone bonds added to the gains

MILAN (Reuters) – Global stocks maintained modest gains on Thursday amid cautious optimism that US data will confirm declining inflation, while the yen rose on a report that Japan will review side effects this month. Policy.

MSCI World Equity Barometer (.MIWD00000PUS) It rose 0.2% to a four-week high by 0831 GMT, ahead of core consumer price inflation in the United States. (USCPFY = ECI) Which is expected to slow to 5.7% annually in December, from 6% in the previous month. On a monthly basis, the general inflation rate is expected to reach zero (USCPI = ECI).

Bonds held on to gains, also reflecting hopes for a weak inflation reading, and the US dollar approached a seven-month low against a basket of currencies. Stokes 600 in Europe (.STOXX) The benchmark stock index rose 0.4%, to its highest level since April 2022.

The data due at 1330 GMT is set to have a significant impact on the markets by shaping expectations for the speed of interest rate hikes in the world’s largest economy. Markets have priced in the odds of even a better Federal Reserve raising interest rates by 25 basis points, rather than 50, at the February meeting.

Jim Reed, strategist at Deutsche Bank, writes: “Both the worst and best days for the S&P 500 in 2022 came in the days of the CPI release. As such, it is inevitable that today’s US CPI will be able to shape the next month. “.

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He added, “Recent releases saw two negative surprises in a row on the CPI for the first time since the pandemic, which led to growing hopes that the Fed might achieve a soft landing after all.”

MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) It rose 0.1% after climbing to a seven-month high, while Japan’s Nikkei rose (.N225) was fixed.

S&P 500 futures were broadly flat after gains for Wall Street indexes on Wednesday. Boston Fed President Susan Collins told The New York Times that she is leaning toward an increase of 25 basis points.

Optimism for a more moderate price outlook and a pickup in demand as China emerges from tough coronavirus restrictions kept oil prices near one-week highs.

Brent crude futures topped $83 on Thursday before pulling back slightly to trade flat at $82.67 a barrel.

US Treasuries added slightly to gains on Wednesday, sending the 10-year yield down 4.4 basis points to 3.514%. German 10-year bund yields, the benchmark for the eurozone, fell 7 basis points to 3.509%.

China hopes

Along with hopes that Western central banks will be kinder, investors are also counting on a recovery in China to help global growth, and are eyeing a possible policy shift in Japan.

The Bank of Japan surprised markets last month by widening the range around its 10-year yield target, a move that sparked a surprise spike in yields and a jump in the yen.

Thursday. Japan’s Yomiuri newspaper reported that the Bank of Japan will review the side effects of Japan’s ultra-easy settings sooner than expected – at policy meetings next week – and that it may take additional steps to correct distortions in the yield curve.

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The yen rose as much as 0.9% and was last at 131.75 per dollar. Futures on 10-year Japanese government bonds fell to their lowest levels in nearly eight years.

FX markets elsewhere were holding their breath ahead of US CPI data, while China’s reopening kept supply under Asian currencies. The dollar index rose 0.1 percent to 103.23, not far from a seven-month low of 102.93 hit this week. The yuan was trading near a five-month high of 6.7555 per dollar.

China on Thursday reported lower consumer prices in December and a larger-than-expected decline in factory gate prices – underscoring weak demand – which investors are betting will recover over the coming months.

“It is not enough for China to emerge from COVID to transform the entire global economy,” said Stephen Whiting, senior investment analyst and chief economist at Citi Global Wealth Investments. “But it really has weight in the opposite direction.”

Additional reporting by Danilo Masoni in Milan and Tom Westbrook in Singapore

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