Global stocks ease as markets await US inflation

London — Stock markets edged lower on Thursday and the dollar held onto overnight gains before US inflation data that will influence the Federal Reserve’s rate plans, while the likely collapse of a major crypto exchange rattled investors.

Europe’s Stoxx 600 index fell 0.4%, and Asia’s broadest index of shares outside Japan dipped by a similar amount, as traders were cautious of placing too many bets ahead of the data. S&P 500 futures inched up 0.2%.

Record-high inflation has prompted the Fed to raise rates aggressively this year, a process that has boosted the dollar and resulted in sharp selling of US Treasuries and shares around the world.

Hopes the Fed might be nearing the end of this process helped the Stoxx benchmark to a two month high earlier this week, however.

The release of US CPI data, due at 1.30pm GMT, is the main event of the day for markets as investors try to position themselves based on when and at what level they think US interest rates will peak.

The report is expected to show a slowing in both the monthly and yearly core numbers for October to 0.5% and 6.5%, respectively, according to a Reuters survey.

“I think the story here is that there are many indications of inflation peaking and rolling over — such as supply chains, used cars, maybe wages — but they simply haven’t shown in the CPI report, so the question is: is today the day that all these indicators finally show up?” said Samy Chaar, chief economist at Lombard Odier.

“Everyone is focused on that and how it will affect the pricing not only for the December Fed meeting but also the peak policy rate pricing.”

If CPI came in higher than expected, particularly its core components, then that pricing would go up, which would be a dollar bullish story, while a lower than expected print could cause the dollar to give back some gains, Chaar said.

Markets are pricing in a 54% chance of a 50 basis-point increase at the Fed’s December meeting, according to CME Group’s Fedwatch tool, with still a good chance of a 75 basis-point rise. Expectations for future meetings are divided.

The dollar was a fraction firmer on Thursday at $0.9986/€ and ¥146.38. It reached a 32-year high of ¥151.94 in October and a 20-year peak against the euro in September when the European common currency dropped as low as $0.9528.

The benchmark 10-year US treasury yield was 4.1% — steady on the day — while European government bond yields were also mostly flat.

The looming CPI data meant markets largely looked through the outcome of the US midterm elections. Republicans were edging closer to securing a majority in the House of Representatives while control of the Senate still hung in the balance.

China’s Covid surge

Another factor for markets is China grappling again with a surge in Covid-19, with the southern metropolis of Guangzhou reporting thousands of cases. Chinese blue-chips lost 0.7% and the Hong Kong benchmark fell 1.7%.

Apple supplier and iPhone assembler Foxconn said on Thursday it expected flattish revenue in the fourth quarter, as the company grapples with Covid-19 curbs at a major factory in China’s Zhengzhou industrial hub.

In the crypto world, bitcoin rose 5% to $16,666, after plunging sharply for two straight sessions to as low as $15,632, its lowest level since late 2020.

Binance, the world’s biggest crypto exchange, said late on Wednesday that it had decided not to acquire smaller rival FTX, which is grappling with a severe liquidity crunch and warned it faces bankruptcy without more capital.

Gold was steady with the spot price at $1,707.3 an ounce.

Reuters