Stocks slide ahead of US inflation data, earnings hurdles


People pass an electronic screen displaying Japan’s Nikkei stock price index in a conference room in Tokyo, Japan June 14, 2022. REUTERS/Issei Kato

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  • European equities fell 1.3%, S&P 500 futures down 0.8%
  • Dollar hits 137 yen for US CPI, inflation expectations
  • Banks kick off profit season from Thursday

SYDNEY/LONDON, Jul 11 ​​(Reuters) – Shares fell Monday as investors braced for a US inflation report that could force another super-large rate hike, and the start of an earnings season that will put pressure on earnings.

The STOXX index of European equities fell 1.3% (.STOXX), with S&P 500 futures down 0.8% and Nasdaq futures 0.9%, as a positive US payroll report lowered expectations of a 75 basis point increase in the Federal Reserve.

MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) fell 1.8%, while Chinese blue chips (.CSI300) lost 1.9% after Shanghai discovered a COVID-19 case involving a new sub-variant, Omicron BA .5.2.1. read more

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Bond yields and the rampant US dollar also rose, with the latter hitting a 24-year high against the yen.

Underlining the global nature of the inflation challenge, central banks in Canada and New Zealand are expected to tighten policy further this week.

While Wall Street posted some gains last week, the mood in the market will be tested by the gains of JPMorgan and Morgan Stanley on Thursday, with Citigroup and Wells Fargo the day after.

Another hurdle will be Wednesday’s US consumer price report, in which markets see headline inflation accelerate further to 8.8%, but a slight slowdown in the core measure to 5.8%.

An early reading of consumer inflation expectations this week will also catch the attention of the Fed.

“Unexpected weakness in these releases will be needed to dispel expectations for a 75 bps Fed rate hike on July 27, which rose from about 71 bps to 74 bps after the salary report,” said Ray Attrill, head of FX strategy at NAB.

PARITY PARTY

Treasury yields rose about 10 basis points, according to the jobs report, and the 10-year bond stood at 3.09% on Monday, up from a recent low of 2.746%.

An aggressive Fed combined with fears of a recession, especially in Europe, has kept the dollar at its highest level in 20 years against a basket of competitors. The dollar broke above 137.00, reaching its highest since 1998 at 137.28 yen, while the Bank of Japan remained subdued. read more

Japan’s conservative coalition government is said to have increased its majority in the upper house elections on Sunday, two days after the assassination of former Prime Minister Shinzo Abe. read more

The euro continued to struggle at $1.0122, after losing 2.4% last week to hit a two-decade low and key retracement target at $1.0072.

“With little economic relief on the horizon for Europe, and US inflation numbers likely to mark a new high for the year and the Fed continuing to act aggressively, we think the risks remain skewed in favor of the dollar,” said Jonas Goltermann. , a senior market economist at Capital Economics.

“Indeed, we believe that the EUR/USD rate will break through parity in the foreseeable future, and may trade through that level in some way.”

Rising interest rates and a strong dollar have been a headache for non-performing gold, which has fallen $1,739 an ounce for four weeks in a row.

Oil prices also lost about 4% last week as demand concerns offset supply constraints.

Data from China expected Friday will likely confirm that the world’s second-largest economy contracted sharply in the second quarter amid coronavirus lockdowns.

Brent traded $1.27 lower at $105.76, while US crude fell $1.43 to $103.36 a barrel.

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Reporting by Wayne Cole and Lawrence White; Editing by Kenneth Maxwell, Bradley Perrett and Kirsten Donovan

Our Standards: The Thomson Reuters Trust Principles.

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