World markets head for record highs ahead of US inflation report

Global shares pushed to a record high on Tuesday, buoyed by better-than-expected Chinese export data, as markets awaited the release of US inflation data later in the day for further indications about the global economic recovery.

The surprisingly strong Chinese data implies that global demand remains strong and helped reassure investors that the world economy was healing from the Covid-19 pandemic, despite the spread of the Delta variant.

Focus now shifts to the release of US consumer price data, expected to tick marginally lower from the previous month, and is likely to further feed debate about when US stimulus may be scaled down.

The MSCI’s all-country equity index added 0.1%, having touched a record high earlier in the day. The pan-European Stoxx 600 index slipped 0.2% after hitting a record high in early trading.

The MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1%, its best daily gain since late June, led by a 1.6% rise in Hong Kong where tech stocks rose broadly. Japan’s Nikkei was up 0.5% while Australian shares slipped 0.02%.

A Reuters poll shows expectations for Tuesday’s inflation data to come in at 4.9% for the month of June when the numbers are released at 12.30pm GMT, compared with 5% the month before.

“Today will be one of the last numbers that are of strong inflation because of the base effect and from then we should have confirmation that inflation will be transitory,” said Francois Savary, CIO at Swiss wealth manager Prime Partners. “Inflation will remain a key feature for markets as it will drive interest rates.”

Investors are navigating a busy week, with the onset of the US earnings season and a testimony by Federal Reserve chair Jerome Powell, which will also be scrutinised for any indications on the timing of potential US tapering.

In Hong Kong, tech behemoth Tencent Holdings jumped 4.4% after China’s antitrust regulator on Tuesday approved its plan to take the country’s third-biggest search engine, Sogou, private in a $3.5bn deal.

“We have clearly seen a [new] round of corrections of the technology sector, which places a heavy weight on Hong Kong’s stock market, due to concerns over a new round of regulatory crackdown following the probe into Didi,” said Zhang Zihua, the CIO at Beijing Yunyi Asset Management. “Against this backdrop, there is room for short-term rebound.” 

Wall Street’s main indices closed at their highest levels ever overnight, lifted by Tesla and bank stocks.

The S&P 500 banks index climbed 1.3% ahead of quarterly earnings reports this week from major banks. JPMorgan Chase rose over 1% and Goldman Sachs rallied more than 2%, fuelling the Dow’s gains.

The next question is whether company earnings will support Wall Street’s run higher.

S&P 500 companies’ earnings per share for the June quarter are expected to rise 66%, according to IBES data from Refinitiv. JPMorgan, Goldman Sachs, Bank of America and other big banks kick off results from Tuesday.

Dollar stable

Concerns that climbing cases of the Delta variant around the world could derail a global economic recovery have fuelled appetite for safe-haven US Treasuries. The yield on the benchmark US 10-year bond yield fell last week to a five-month low of 1.25%.

While markets have since stabilised, yields are not far off last week’s lows at 1.3745%.

Eurozone government bond yields have fallen in line with US Treasuries in recent weeks, and are running close to their lowest levels since early April.

Germany’s 10-year bond yield was unchanged at -0.30%, close to a three-month low of -0.344% that was recorded last week.

In currency markets, the dollar hardly moved against its main peers before the US inflation data. It was broadly unchanged against the euro at $1.1856 after its more than 2% rise over the past month.

US crude ticked up 0.7% to $74.63 a barrel, and Brent crude rose 0.7% to $75.71/bbl.

Gold was flat, with the spot price trading at $1806.91 per ounce.

Reuters