Wall Street stocks opened lower on Tuesday, as traders awaited US inflation data this week that may offer further clues about how aggressively the Federal Reserve will raise interest rates to tackle inflation.
The S&P 500 fell 0.2 per cent at the open, while the Nasdaq Composite index lost 0.8 per cent.
In Europe, the regional Stoxx 600 fell 0.6 per cent and Germany’s Dax index lost 1 per cent, with industrial giant Siemens slipping 2.2 per cent on Monday after disappointing results.
Hong Kong’s Hang Seng index closed down 0.2 per cent, while Japan’s Topix lost 0.7 per cent, dragged lower by a 7 per cent decline for SoftBank shares after the conglomerate reported a record $23bn loss on Monday for the first quarter.
Those moves came ahead of the release of closely watched US consumer price index data on Wednesday, which is expected to influence the Fed’s plans for monetary policy tightening as it contends with scorching inflation.
“The next 30 hours will be the calm before the storm or perhaps herald in the real start of the dog days of summer,” Jim Reid, a strategist at Deutsche Bank, wrote on Tuesday morning.
Economists polled by Reuters expect headline inflation to have increased 0.2 per cent from June to July, with core inflation, stripping out food and petrol costs, anticipated to have risen 0.5 per cent. They expect inflation to have reached 8.7 per cent on a year-over-year basis, slightly below the figure for June.
After a strong start to 2022 for energy and commodity stocks, and steep declines for growth companies, shares in Big Tech companies have rebounded in recent weeks. The technology-heavy Nasdaq Composite has risen almost 15 per cent so far this quarter.
“A higher than expected inflation print will lead to another round of hawkish Fed expectations,” said Patrick Moonen, principal strategist at NN Investment Partners. “Then the balance may shift towards value stocks, like financials. On the other hand, if it is better than expected, [high-quality] growth stocks can continue to perform well.”
He warned that the “bear market rally” of recent weeks, which has seen the MSCI World Index of global equities rise more than 10 per cent since a trough on June 19, could soon come to an end. “I’d not be surprised to see this market trading down again for the next few weeks,” he added.
Recent US data showed that inflation has continued to rise in recent months, with the Fed’s preferred inflation gauge, the core personal consumption expenditures index, and the latest employment cost index report, which tracks wages and benefits, also up in recent weeks.
Fed chair Jay Powell has adopted a “meeting-by-meeting” approach to rate rises, rather than providing guidance in advance. Markets are pricing in the possibility of a 0.75 percentage point rise at the Fed’s next policy meeting in September.
In government bond markets, the yield on the 10-year US Treasury note added 0.04 percentage points to 2.8 per cent as its price slipped lower. The 10-year German Bund yield rose 0.05 percentage points to 0.95 per cent. The dollar lost 0.4 per cent against a basket of six currencies.
