World shares hold up, inflation data looms

·4-min read

European shares have extended their bounce and bond yields have held below recent peaks ahead of inflation data in the United States that will offer a guide to how aggressively the Federal Reserve will raise rates.

Asian equities squeezed higher from near two-year lows and Wall Street futures also gained before the release of the keenly awaited datapoint which analysts say could show inflationary pressures in the world's biggest economy are peaking.

MSCI's benchmark for global stocks rose 0.2 per cent by 0822 GMT on Wednesday after sliding on Tuesday to its lowest level since November 2020 on fears Fed tightening could significantly slow down the global economy. The index is down 17 per cent so far this year.

The pan-European STOXX 600 index rose 0.7 per cent. US equity futures rose, with the Nasdaq and S&P 500 e-minis up 0.8 per cent and 0.7 per cent respectively.

Concerns over faltering growth, exacerbated by the latest virus lockdowns in China, curbed a selloff in government bonds that saw 10-year US benchmark yields surge past 3 per cent this month for the first time since December 2018.

"It's an unanchored market where people don't know where (yields) are going to. The growth side is coming more and more to the fore in terms of market concerns," said Charles Diebel, head of fixed income at Mediolanum International Funds.

"If inflation continues to print higher and higher the market will continue to sell off. Intuitively inflation cannot keep going up as base effects will unwind at some point but are we are that price yet?" he added.

Analysts expect the US consumer price index to show a sharp pullback in monthly growth, cooling to 0.2 per cent in April from 1.2 per cent in March.

They also predict an annual increase of 8.1 per cent, 0.4 percentage point lower than the prior 8.5 per cent, which was the hottest reading since December 1981.

In Asia, Chinese blue chips rose 1.4 per cent after Shanghai officials saying half the city had achieved "zero COVID" status, and after US President Joe Biden saying he was considering eliminating Trump era tariffs on China.

Chinese data released on Wednesday however showed consumer prices gained 2.1 per cent from a year earlier, above expectations and the fastest pace in five months, partly due to food prices.

US Treasuries pulled back in European trading hours ahead of the data.

The benchmark 10-year note yield was down 4.7 basis points to 2.9421 per cent, extending its fall from the three-year high of 3.203 per cent hit on Monday.

The US two-year yield, which often reflects the Fed rate outlook, fell 1.4 basis points to 2.592 per cent.

Bets over aggressive Fed tightening has also supported the dollar this year.

The dollar index, which measures the greenback against six main peers, fell 0.3 per cent to 103.65, below the two-decade high of 104.19 reached at the start of the week.

The Fed last week raised interest rates by 50 basis points and Chair Jerome Powell said two more such hikes are likely at the US central bank's coming policy meetings.

There has also been speculation in markets the Fed will need to go in for a massive 75 basis point hike at one meeting and currently Money markets are pricing over 190 basis points of combined rate hikes by year.

"The current problem is that the market is convinced that the Fed is determined to fight inflation and therefore willing to tolerate market volatility and some demand destruction more than in the past. Personally, I'm less convinced of this determination," said Giuseppe Sersale, fund manager at Anthilia.

Oil bounced back after plunging nearly 10 per cent over the previous two sessions, buoyed by supply concerns as the European Union works on gaining support for a ban on Russian oil and as major producers warned they may struggle to fill the gap when demand improves.

Brent rose 2.6 per cent to $105.10 a barrel and US crude rose 2.5 per cent to $102.3

Spot gold rose around 0.7 per cent steady at to $1850.2 an ounce.

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