Stocks, bonds slip as key US inflation data loom: markets wrap

Stocks and bonds declined on Wednesday amid caution ahead of US inflation data that will shape investor expectations for further Federal Reserve interest-rate hikes.

A gauge of Asian equities headed for a three-week low, with technology stocks the biggest drag. Chinese shares dropped as inflation accelerated in July to the highest level in two years.

US and European futures were in the red following a drop in the S&P 500 for a fourth session. Micron Technology Inc. became the latest chipmaker to warn about slowing demand, fanning economic concerns.

Treasury yields climbed, while a dollar gauge steadied. Crude oil dipped below $90 a barrel, and both gold and Bitcoin fell.

The two-year Treasury rate exceeds the 10-year by nearly 50 basis points. The inversion, around deepest since 2000, is viewed as a sign of a looming recession under the Fed’s monetary-tightening campaign to curb inflation.

A report Wednesday is expected to show headline US consumer-price inflation cooled but stayed elevated in July, while the core reading may have quickened on an annual basis. How the figures affect views on Fed tightening will be key for risk sentiment.

“The FOMC will need to make sure inflation moves back towards target sustainably before contemplating pausing its tightening cycle,” Carol Kong, a strategist at Commonwealth Bank of Australia, wrote in a note. “A strong inflation outcome today will likely reinforce the FOMC is still some way away from that point yet, and see markets readjust higher their expectations for US interest rates.”

Federal Reserve Bank of St. Louis President James Bullard said the US central bank will be prepared to hold interest rates “higher for longer” should inflation continue to surprise to the upside.

The Fed “will be driving those short rates higher,” said Gary Schlossberg, a global strategist for Wells Fargo Investment Institute, on Bloomberg Television. “We will be seeing a deepening inversion and a full inversion of the Treasury yield curve.”

Elsewhere, Elon Musk sold $6.9 billion of shares in Tesla Inc., the billionaire’s biggest sale on record, saying he needed cash in case he is forced to go ahead with his aborted deal to buy Twitter Inc.

What to watch this week:

• US CPI data, Wednesday
• Chicago Fed President Charles Evans and his Minneapolis counterpart Neel Kashkari due to speak, Wednesday
• US PPI, initial jobless claims, Thursday
• San Francisco Fed President Mary Daly is interviewed on Bloomberg Television, Thursday
• Euro-area industrial production, Friday
• US University of Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures were down 0.2% as of 7 a.m. in London. The S&P 500 fell 0.4%
• Nasdaq 100 futures fell 0.3%. The Nasdaq 100 fell 1.2%
• Japan’s Topix index lost 0.2%
• South Korea’s Kospi index declined 1%
• Hong Kong’s Hang Seng Index slid 2.4%
• China’s Shanghai Composite Index fell 0.6%
• Australia’s S&P/ASX 200 index was down 0.5%
• Euro Stoxx 50 futures lost 0.3%

Currencies

• The Bloomberg Dollar Spot Index was steady
• The euro was at $1.0210
• The Japanese yen was at 135.00 per dollar
• The offshore yuan was at 6.7616 per dollar, down 0.1%

Bonds

• The yield on 10-year Treasuries advanced two basis points to 2.80%
• Australia’s 10-year yield climbed almost six basis points to 3.24%

Commodities

• West Texas Intermediate crude was at $89.75 a barrel, down 0.9%
• Gold was at $1 788.51 an ounce, down 0.3%