World markets lift ahead of US inflation report

Global shares edged higher on Tuesday, tracking a rebound on Wall Street ahead of a key US inflation report and speeches by US Federal Reserve members, while the yen recouped losses after Japan nominated a new central bank governor.

European shares cheered an upbeat handover from Asia, with the pan-European Stoxx 600 up 0.5%, hovering near its highest in a year, while a continued uptrend in London’s FTSE 100 saw it scale new peaks.

Wall Street futures were muted with the focus on US consumer price index (CPI) data for January, which is expected to show how effective Federal Reserve policy tightening has been in taming inflation. Overnight, the S&P 500 closed up 1.1%.

Analysts expect headline consumer price inflation to have risen by 6.2% in the 12 months to January, vs a rise of 6.5% in December.

“The good news is that the market has been shaken out of its … disinflation view,” said Jim Reid, head of global fundamental credit strategy at Deutsche Bank, referring to markets pricing in a more hawkish Fed following stellar US job growth numbers last week.

Two-year treasury note yields, which hit three-month highs on Monday as investors priced in the prospect of US rates staying higher for longer, eased by two basis points to 4.5095%.

Investors will watch for remarks from Fed members following the inflation data. Analysts and strategists have said Tuesday’s report could look more inflationary after annual changes to the methodology to give more weight to real estate.

The dollar fell ahead of the data, after suffering a 0.2% loss against its major peers in the last session.

“On the one hand, methodological changes are causing uncertainty and are making the interpretation more difficult, on the other hand it is already emerging that due to adjusted seasonal factors current inflation momentum seems to have fallen less than had originally been expected,” said Esther Reichelt, forex analyst at Commerzbank.

“The main uncertainty for the dollar outlook seems to be to what extent the Fed itself was surprised by the current data or whether the recent data is still in line with the ‘bumpy’ ride of disinflation expected by the Fed.”

In particular, the dollar weakened 0.2% against the yen to ¥132.115, after gaining 0.8% the previous day.

On Tuesday, the Japanese government named academic Kazuo Ueda as its pick for central bank governor, a surprise choice that could improve the odds of an end to its unpopular yield control policy.

The yen drew additional support from data that showed the Japanese economy avoided recession in the final three months of 2022, although growth did increase by a lot less than expected.

On the geopolitical front, US secretary of state Antony Blinken considered meeting top Chinese diplomat Wang Yi at the Munich Security Conference this week, signalling a slight easing of tension between the world’s two largest economies, after the US shot down what it said was a Chinese spy balloon last week.

In the oil market, Brent crude futures fell 0.7% to $85.99 a barrel, while US West Texas Intermediate (WTI) crude dropped 1.1% to $79.26.

Gold rose almost 0.4%, drawing strength from a touch of weakness in the dollar, to trade at $1,862.16/oz.

Reuters