People walk past an electronic screen showing Japan’s Nikkei stock price index in a conference room in Tokyo, Japan June 14, 2022. REUTERS/Issei Kato
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- European shares fell 1.3%, S&P 500 futures 0.8%
- Dollar tops ¥137 ahead of US CPI, inflation expectations
- Banks start their earnings season from Thursday
SYDNEY/LONDON, July 11 (Reuters) – Shares edged lower on Monday as investors braced for a U.S. inflation report that could prompt another huge rate hike and the start of an earnings season in which profits will be under pressure.
Europe’s STOXX stock index fell 1.3 percent (.STOXX), with S&P 500 futures down 0.8 percent and Nasdaq futures down 0.9 percent, as an upbeat June U.S. payrolls report boosted expectations for a 75 basis point hike from the Federal Reserve.
MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) fell 1.8 percent, while China’s blue chips (.CSI300) lost 1.9 percent after Shanghai detected a case of COVID-19 involving new subvariant, Omicron BA.5.2.1. Read more
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Bond yields and the rampant U.S. dollar also rose, with the latter hitting a 24-year high against the yen.
Underscoring the global nature of the inflation challenge, central banks in Canada and New Zealand are expected to tighten policy further this week.
While Wall Street made some gains last week, market sentiment will be tested by earnings at JPMorgan and Morgan Stanley on Thursday, with Citigroup and Wells Fargo the day after.
Another headwind will be Wednesday’s US consumer price report, in which markets see headline inflation accelerating further to 8.8%, but the core reading slowing slightly to 5.8%.
This week’s early reading of consumer inflation expectations will also draw close attention from the Fed.
“The unexpected weakness in these releases will be needed to dispel expectations of a Fed rate hike from 75 basis points on July 27, which rose from around 71 basis points to 74 basis points after the payrolls report,” said Ray Attrill , head of FX strategy at NAB.
PARITY PARTY
Treasury yields rose about 10 basis points on the jobs report, and the 10-year was at 3.09 percent on Monday, up from a recent low of 2.746 percent.
A hawkish Fed, coupled with recession fears, especially in Europe, has kept the dollar at 20-year highs against a basket of rivals. The dollar rose above 137.00 yen to hit its highest level since 1998 at 137.28 yen, while the Bank of Japan remained passive. Read more
Japan’s conservative coalition government was expected to increase its majority in Sunday’s upper house election, two days after the assassination of former Prime Minister Shinzo Abe. Read more
The euro continued to struggle at $1.0122 after losing 2.4% last week to reach a two-decade low and a key correction target at $1.0072.
“With little economic relief on the horizon for Europe and US inflation data likely to mark a new high for the year and prompt the Fed to continue aggressively, we think risks remain skewed in favor of the greenback,” said Jonas Goltermann, Sr. market economist at Capital Economics.
“We really think EUR/USD will break parity soon and may trade some way through this level.”
Rising interest rates and a strong dollar were a headache for non-yielding gold, which was at $1,739 an ounce after falling for four straight weeks.
Oil prices also lost about 4% last week as worries about demand offset supply constraints.
Data from China, due on Friday, is likely to confirm that the world’s second-largest economy shrank sharply in the second quarter amid the coronavirus lockdown.
Brent was down $1.27 at $105.76, while U.S. crude was down $1.43 at $103.36 a barrel.
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Reporting by Wayne Cole and Lawrence White; Editing by Kenneth Maxwell, Bradley Perrett and Kirsten Donovan
Our standards: The Thomson Reuters Trust Principles.
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