Global stocks remained near two-year lows ahead of US CPI data

LONDON, Oct 13 (Reuters) – Global stocks stabilized near a two-year low and the Japanese yen held steady around its 1998 level on Thursday as investors braced for U.S. inflation data likely to determine the magnitude of the next Federal Reserve interest rate hike.

Global markets endured a torrid few weeks, but there was a brief respite ahead of the US consumer price reading as major European stock markets and Wall Street futures both stabilized after six days in the red. (.MIWD00000PUS)

The seemingly unstoppable dollar also took a breather, while UK markets surged on a report that the UK government was discussing scrapping other tax cuts announced last month.

It came just a day before the Bank of England ended its emergency measures to stabilize the gilt market and helped both European stocks (.STOXX) and Wall Street futures cement rallies after 4% and 5% respectively (.SPX) falls within the last 5 days.

Markets are increasingly concerned that rapidly rising interest rates will lead to a recession. Data confirmed Germany’s harmonized inflation was 10.9% year-on-year in September and almost 10% in Sweden, but all eyes are on consumer price inflation data in the states. States, expected at 12:30 GMT.

Paul O’Connor, head of Multi-Asset at Janus Henderson Investors, said the question for investors is whether central banks like the Fed are nearing the end of their interest rate hikes.

“Have we gotten there yet? I feel like we’re pretty close to peak rate pricing, but in terms of growth, I think there’s probably a lot of downgrades still to come,” he said. he declared.

Interest rate hikes take a year to 18 months to take full effect. As a result, “it is entirely plausible that towards the end of the year central banks will declare a pause… labor markets will cool and housing markets will fall.”

The headline US CPI figure is expected to have fallen two tenths of a percentage point to 8.1%, still a killer, but the “core” figure which excludes the most volatile components is expected to rise to 6.5% from 6 .3%.

Minutes of the Fed’s latest policy meeting released on Wednesday showed that many officials “stressed that the cost of taking too little action to bring inflation down likely outweighed the cost of taking too much action.”

Several policymakers, however, stressed that it would be important to “calibrate” the pace of further rate hikes to reduce the risk of “significant adverse effects” on the economy.

Treasury yields have been volatile in Europe. The benchmark US 10-year yield initially rose to 3.923%, then fell back to 3.894%, with most equivalent European yields also falling slightly.

Markets are pricing in a 90% chance of another 75 basis point Fed rate hike in November, versus a 10% chance of a half-point hike.

CONCERNED

In Asia, widespread weakness in stock markets had seen the Japanese Nikkei (.N225) down 0.6% and the South Korean Kospi (.KS11) 1.8% drop as Taiwanese chipmaker giant TSMC (2330.TW) saw demand plummet and cut its investment budget by at least 10% in the wider region’s technology sector. Read more

Hong Kong’s Hang Seng (.HSI) fell 1.9% and mainland Chinese blue chips (.CSI300) fell 0.3% to exit the MSCI Asia-Pacific equity index (.MIAP00000PUS) close to the 2 1/2 year lows.

U.S. emini stock futures offered some hope, however, rising 0.5% after the S&P 500 (.SPX) sixth consecutive fall on Wednesday.

“The risk of an episode of excessive tightening and a financial market mishap is higher than I remember,” said Tom Nash, bond portfolio manager at UBS Asset Management in Sydney.

HEROIC

The dollar index, which measures the greenback against six major rivals, fell slightly to 112.92 ahead of the CPI data.

The US currency remained close to a new 24-year high against the yen and last changed hands at 146.79 while the pound climbed nearly 1.5% to 1.1263 $ on reports of possible tax reduction changes. It had hit a two-week low of $1.0925 on Tuesday.

Benchmark 10-year gilt yields, which erupted after the UK government presented tax cut plans last month, fell from a new 14-year high of 4.632% to 4.249% at the start of the month. afternoon.

The Bank of England has insisted its emergency bond market support will expire on Friday as originally announced, contradicting media reports of continued aid if needed.

BoE Governor Andrew Bailey riled markets on Tuesday by saying UK pension funds and other investors hit hard by falling bond prices had until a deadline to resolve their issues.

“I would say it’s heroic to say that the risk of some sort of systemic problem has been extinguished because these are big moves and we don’t know now how much deleveraging needs to be done,” O’Connor said of Janus Henderson. “Markets still feel very dysfunctional.”

Meanwhile, crude oil markets rallied after falling 2% on Wednesday amid concerns over demand.

Brent crude futures jumped 23 cents, or 0.25%, to $92.69 a barrel, while U.S. West Texas Intermediate crude rose 21 cents, or 0.2%, to 87, $44 a barrel.

Last week, the producer group made up of the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, pushed prices higher by agreeing to cut supply by 2 million barrels per year. day (bpd).

Additional reporting by Kevin Buckland in Tokyo, editing by Alexander Smith, Kirsten Donovan

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