Stocks Rise Ahead of US CPI Data; Pound Weakens: Markets Close

(Bloomberg) — European shares rose versus Asian peers on bets that Wednesday’s U.S. consumer price report will allow the Federal Reserve to cut interest rates in September.

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UBS Group AG led gains in European financial services stocks after the bank’s second-quarter profit beat expectations on strong customer inflows and investment banking revenues. Mining activity fell as iron ore supplies fell to their lowest level since May 2023 on demand concerns in China, with Rio Tinto Group down 1.7%.

The MSCI benchmark for Asian shares climbed for a fourth session to further recover from last week’s rout. U.S. stock contracts held steady after Tuesday’s 1.7% rally in the S&P 500, fueled by cooler-than-expected U.S. producer price data.

The easing of price pressures in the US has boosted confidence that officials can cut borrowing costs and refocus on supporting the labor market. Forecasters expect a modest rise of 0.2% in both the consumer price index and the core measure excluding food and energy – which would mark the smallest three-month increase for the latter since early 2021.

“Global markets seem to be giving the clear signal after last week’s recession fears,” said Jun Rong Yeap, strategist at IG Asia Pte. “Further inflationary progress in US producer prices, which may also herald further easing in consumer prices, has provided additional support to the risk rally.”

The pound fell against the dollar after British inflation figures came in below expectations. The consumer price index rose 2.2% in July, after rising 2% in each of the previous two months. Economists had expected an increase of 2.3%. For the first time since August 5, traders have fully priced in half a point of further Bank of England rate cuts by the end of the year.

UK government bonds rose on inflation, while government bonds were little changed after rising across the curve in the previous session. A Bloomberg gauge of the dollar held steady near a four-month low.

Ten-year government bond yields in New Zealand fell after the central bank cut rates by 25 basis points, starting an easing cycle much earlier than previously indicated. The kiwi fell more than 1% while local shares rose.

In Japan, the Nikkei fluctuated as traders digested news that Prime Minister Fumio Kishida will not run for a second term as leader of the long-ruling Liberal Democratic Party in September. The yen remained stable after earlier strengthening towards the 146 per dollar mark.

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Elsewhere in Asia, Chinese shares fell after data showed bank loans to the real economy shrank for the first time in 19 years. A gauge for Chinese technology companies in Hong Kong fell more than 1% ahead of Tencent Holdings Ltd.’s profits. and its buyback plans.

“The Chinese internet giants reporting this week will be key to seeing whether consumption weakness in China is weighing on margins and ROIs, and which vertical sub-segments like gaming may be better places,” said Britney Lam, head of equity long/short at Magellan Investments Holding Ltd. “The valuation is attractive, but the earnings momentum is crucial.”

Overnight, the S&P 500 posted its biggest four-day rally of the year, pushing the gauge closer to a key technical level. The Nasdaq 100 climbed 2.5%. Wall Street’s favorite volatility gauge – the VIX – plummeted to around 18. Swap traders had priced in a Fed cut of around 40 basis points in September and a total rate cut of more than 105 basis points by 2024.

Oil rose, recovering from Tuesday’s losses after an industry report pointed to a significant drop in U.S. crude inventories and tensions in the Middle East simmered. The iron ore sector’s weakness deepened after the world’s largest steelmaker warned that China’s steel industry is facing a crisis more severe than the 2008 and 2015 recessions, likening conditions to a “harsh winter.”

Main events this week:

• Eurozone GDP, industrial production, Wednesday

• US CPI, Wednesday

• House prices in China, retail sales, industrial production, Thursday

• US initial unemployment claims, retail sales, industrial production, Thursday

• Alberto Musalem and Patrick Harker of the Fed will speak on Thursday

• US housing market starts, consumer sentiment from University of Michigan, Friday

• Fed CEO Austan Goolsbee speaks Friday

Some of the major moves in the markets:

Stocks

• The Stoxx Europe 600 rose 0.4% as of 8:18 a.m. London time

• Futures on the S&P 500 were little changed

• Nasdaq 100 futures were little changed

• Futures on the Dow Jones Industrial Average were little changed

• The MSCI Asia Pacific Index rose 0.6%

• The MSCI Emerging Markets Index rose 0.4%

Currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro was little changed at $1.1002

• The Japanese yen fell 0.3% to 147.23 per dollar

• The offshore yuan was little changed at 7.1487 per dollar

• The British pound fell 0.2% to $1.2840

Cryptocurrencies

• Bitcoin rose 0.3% to $60,791.3

• Ether rose 0.9% to $2,722.67

Bonds

• The yield on 10-year government bonds was little changed at 3.85%

• The German ten-year yield remained little changed at 2.19%

• The British ten-year yield fell by four basis points to 3.85%

Raw materials

• Brent crude rose 0.6% to $81.18 per barrel

• Spot gold rose 0.2% to $2,469.43 an ounce

This story was produced with the help of Bloomberg Automation.

–With help from Winnie Hsu and Michael Msika.

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