LONDON, July 13 (Reuters) – Shares fell on Wednesday and the euro hovered just above parity against the dollar as traders waited to see if U.S. inflation data later bolstered the case for another ultra-large interest rate hike by the Federal Reserve this year month.
Recession worries meant European shares stumbled again after a relatively steady session in the Asia-Pacific region, where South Korea and New Zealand raised interest rates again.
London’s FTSE (.FTSE), Germany’s DAX (.GDAXI) and France’s CAC40 (.FCHI) fell 0.6-0.8%, while the euro managed to climb to $1.0050, although petrol prices jumped further 4.2%/FRX
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Copper, which is aligned to global growth, had also hit a 20-month low, now down 30% since April, although Wall Street futures were pointing higher.
UK economic growth data also led to a surprise boost, but investors were much more focused on whether US inflation data would soon show it hitting 9%, which would be the highest level since 1981. this way. Read more
“Markets have been held back a bit in terms of euro-dollar parity, but we still have an incredible number of moving parts,” said Keith Jukes of Societe Generale, explaining that the higher US inflation figures, the clearer it will be be that the Federal Reserve will continue to raise interest rates.
It increased them by a whopping 75 basis points in its last session, its first move of this magnitude since 1994.
“If this (high inflation reading) were to happen today, it could unnerve the bond market again, invert the US yield curve more and send the euro decisively through parity,” Jukes said.
Underscoring concerns about global inflation, South Korea’s central bank on Wednesday raised interest rates by 50 basis points, the biggest increase since the bank adopted its current policy framework in 1999, and New Zealand’s central bank also made its third a consecutive increase of 50 basis points in a row. Read more
That left all fixed income markets waiting for US inflation data from 1230 GMT. The yield on German government bonds rose to 1.15%, after falling sharply for two days, while 10-year US Treasuries held steady at 2.97% as they also absorbed the latest cut in the forecast of IMF on US growth. Read more
The warning signs of a recession in the bond market are now flashing “with increasing alarm,” said Jim Reid of Deutsche Bank. One in particular is the 2-year/10-year US Treasury curve, which has inverted before each of the last 10 US recessions and remains near its most inverted value of this cycle so far at -8.5 basis points.
PARITY WATCH
Wall Street futures pointed to a marginally higher start for the main S&P 500, Nasdaq and Dow Jones indexes after falling late on Tuesday.
Overnight, MSCI’s broadest index of Asia-Pacific shares outside Japan ( .MIAPJ0000PUS ) gained 0.5 percent, snapping two straight days of losses and after collapsing to a two-year low the previous day.
Taiwanese stocks led gains after Taiwan’s finance ministry said on Tuesday night it would activate its equity stabilization fund. The market (.TWII) fell to a 19-month low that day.
Japan’s Nikkei (.N225) ended up 0.5% after losing nearly 2% the previous day.
“However, the sharp weakness in oil prices in July suggests that (inflation) could peak in June.” If so, the Fed’s most dynamic phase of tightening could end with a 75 basis point rate hike on July 27,” ANZ analysts said.
“However, our expectation is that underlying strength in core inflation and still deeply negative real interest rates mean that 50 basis point rate hikes will be appropriate beyond the summer.”
Worries that higher interest rates could drag the global economy into stagnation or, worse, recession have been the main driver behind both the 20 percent drop in global stocks this year and the surge in the safe-haven U.S. dollar.
The euro, which has fallen more than 11 percent since January, was last at $1.0050 as investors waited to see if it would fall below one U.S. dollar for the first time since 2002.
It fell just a whisker on Tuesday, falling to $1.00005.
The greenback was also steady against other peers, with its index against major rivals holding just below 108.
Oil prices halted their overnight decline. Brent crude was little changed at $100 a barrel and U.S. West Texas Intermediate crude at $96.31. However, industrial copper fell another 0.75% on the London Metal Exchange (LME) to $7,310 a tonne, after falling to $7,202.50.
Meanwhile, leading cryptocurrency Bitcoin rose more than 2% and looked set to snap a three-day losing streak, although at $19,772 it was still trading below the key psychological barrier of $20,000.
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Additional reporting by Alan John in Hong Kong and Sam Byford in Tokyo; Editing by Alison Williams, Kirsten Donovan
Our standards: The Thomson Reuters Trust Principles.
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