US Stock Futures Edge Higher After Inflation Jolt: Markets Wrap

(Bloomberg) — US equity futures signaled a small rebound from Tuesday’s Wall Street slump triggered by hotter-than-expected US inflation data that fueled bets the Federal Reserve may not cut interest rates as soon as expected.

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Contracts on the S&P 500 rose 0.2% after the benchmark’s worst inflation-day drop since September 2022, while those on the tech-heavy Nasdaq 100 gained 0.4%. The dollar was steady, while Treasury yields retraced some of the previous day’s surge as traders trimmed bets for an early Fed rate cut. The US inflation figures have erased the last remnants of a global bond rally that started in December with the hope that the Fed had finally pivoted to favor an easing.

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There was better news Wednesday for UK traders looking forward to policy easing by the Bank of England. Inflation in Britain came in lower than forecast in January, with underlying price pressures not rising as much as markets and the BOE feared. The pound reversed earlier gains after the data, while UK bonds rallied.

Europe’s Stoxx 600 index was steady as investors assessed the latest earnings news. Heineken NV fell 6.5% after warning that persistent inflation and economic worries will weigh on beer demand in 2024. ABN Amro Bank NV rallied after it unveiled a fresh share buyback with the Dutch state participating, as part of its planned sell down in the lender.

Stocks in Asia mostly fell, as shares dropped in South Korea, Japan and Australia. Hong Kong indexes reversed an early drop as trading resumed after the Lunar New Year holiday, with investors focusing on what more Beijing can do stem the rout. Markets in China remain closed.

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The yen rebounded slightly from its slump on Tuesday after Masato Kanda, Japan’s top currency official, cautioned that recent movements have been rapid, and authorities stand ready to take steps if needed. His comments were reinforced by Finance Minister Shunichi Suzuki shortly afterward. Japan’s 10-year government bond yield climbed to the highest level since December.

“Remarks from the authorities probably put a cap on the dollar-yen today, but they were not intense enough to change the course of the pair,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities Co. “The bigger impact to cause the dollar’s slight decline and the yen’s rebound is a halt in US Treasury yields in Asia and a drop in Japanese equities.”

The American CPI data came as a disappointment for investors after a recent downdraft in price pressures that helped build expectations for rate cuts this year. The numbers also gave credence to the wait-and-see approach highlighted by Jerome Powell and a chorus of Fed speakers. Swap traders ratcheted down their expectations for a Fed cut before July while the stock market’s “fear gauge” — the VIX — closed above 15 for the first time since November.

Swap contracts referencing Fed policy meetings — which as recently as mid-January fully priced in a rate cut in May and 175 basis points of easing by the end of the year — were roiled. The odds of a May cut dropped to about 32% from about 64% before the inflation data, with fewer than 90 basis points anticipated this year.

In the UK, consumer prices rose 4% in January compared to a year earlier, the same pace as in December, the Office for National Statistics said Wednesday. The BOE and private-sector economists had expected inflation to tick higher to 4.1%.

The inflation data triggered a repricing in BOE rate bets, with traders resuming wagers on three quarter-point reductions this year. Money markets priced about 72 basis points of easing in 2024, compared to 61 basis points the previous day.

Oil steadied after a mixed US inventory report, while OPEC and the IEA offered contrasting outlooks for the global crude market. Gold was locked in a narrow range after plunging below $2,000 an ounce for the first time in two months while Bitcoin traded near the $50,000 mark.

Key Events this Week:

• Eurozone industrial production, GDP, Wednesday

• BOE Governor Andrew Bailey testifies to House of Lords economic affairs panel, Wednesday

• Chicago Fed President Austan Goolsbee speaks, Wednesday

• Fed Vice Chair for Supervision Michael Barr speaks, Wednesday

• Japan GDP, industrial production, Thursday

• US Empire manufacturing, initial jobless claims, industrial production, retail sales, business inventories, Thursday

• ECB President Christine Lagarde speaks, Thursday

• Atlanta Fed President Raphael Bostic speaks, Thursday

• Fed Governor Christopher Waller speaks, Thursday

• ECB chief economist Philip Lane speaks, Thursday

• US housing starts, PPI, University of Michigan consumer sentiment, Friday

• San Francisco Fed President Mary Daly speaks, Friday

• Fed Vice Chair for Supervision Michael Barr speaks, Friday

• ECB executive board member Isabel Schnabel speaks, Friday

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 rose 0.1% as of 8:12 a.m. London time

• S&P 500 futures rose 0.2%

• Nasdaq 100 futures rose 0.3%

• Futures on the Dow Jones Industrial Average were little changed

• The MSCI Asia Pacific Index fell 0.5%

• The MSCI Emerging Markets Index fell 0.2%

Currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro was little changed at $1.0701

• The Japanese yen rose 0.2% to 150.46 per dollar

• The offshore yuan was little changed at 7.2299 per dollar

• The British pound fell 0.3% to $1.2552

Cryptocurrencies

• Bitcoin rose 0.5% to $49,796.51

• Ether rose 0.7% to $2,652.49

Bonds

• The yield on 10-year Treasuries declined three basis points to 4.29%

• Germany’s 10-year yield declined three basis points to 2.37%

• Britain’s 10-year yield declined eight basis points to 4.07%

Commodities

• Brent crude was little changed

• Spot gold fell 0.2% to $1,988.38 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Yumi Teso and Rob Verdonck.

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